The European Central Bank left its benchmark deposit rate unchanged at 2.25% on Thursday, pausing after June’s quarter-point increase. The decision, which was unanimous according to President Christine Lagarde, came as renewed hostilities between the United States and Iran pushed Brent crude to $100 a barrel for the first time in two months. Iran-aligned Houthi rebels claimed strikes on two Saudi oil tankers in the Red Sea, threatening a widening of the conflict beyond the already-constricted Strait of Hormuz.

The Governing Council judged that while energy price prospects remain highly volatile, they currently sit near the baseline scenario of the June staff projections. The central bank’s statement warned that “uncertainty remains high and the full inflationary impact of the energy shock has yet to play out,” signalling that the transmission of higher fuel costs into broader prices and wages is still unfolding. Lagarde told reporters she had commissioned a detailed analysis of oil and gas prices ahead of the September meeting, describing the latest geopolitical developments as “alarming.”

Viewed from Frankfurt, the pause reflects a calculation that the eurozone economy is too fragile to absorb consecutive rate increases without clearer evidence of second-round effects. Eurozone inflation eased to 2.8% in June from 3.2% in May, yet the ECB’s baseline sees inflation averaging 3% this year and not returning to the 2% target until mid-2027. Analysts in London and Milan note that the central bank faces a stagflation risk: raising rates to curb energy-driven inflation could further weaken growth already hovering near zero, while holding too long risks embedding higher price expectations.

Lagarde disclosed that some governors had questioned whether a hike should have been considered at this meeting, though the final decision was unanimous. Markets now price a resumption of tightening at the September 10 meeting, when new macroeconomic projections will be available. The ECB reiterated it is not pre-committing to any rate path, stating future decisions will be data-dependent and taken meeting by meeting.