Central Banks Hold Rates; Oil Prices Rise in Iran Conflict

Central banks in Europe and the U.K. held interest rates steady on Thursday, citing uncertainty from the Iran war and surging energy prices. The Bank of England kept its main rate at 3.75%, while the European Central Bank maintained its deposit rate at 2%.

Oil prices reached new highs, with Brent crude surpassing $122 per barrel and WTI exceeding $105, driven by the U.S. naval blockade of Iran and the closure of the Strait of Hormuz. Multiple sources reported that the blockade aims to pressure Iran on its nuclear program, with no immediate signs of resolution.

Iran could run out of oil storage capacity within weeks, according to Western intelligence cited in the Jerusalem Post. President Trump stated that the blockade will continue until Tehran abandons its nuclear ambitions.

England's decision followed a vote to hold rates, as policymakers assess the economic fallout from the Middle East conflict, through which a fifth of global crude oil passes. A Bank of England official said the sheer volatility of energy prices makes it impossible to assign probabilities to different scenarios.

The ECB's statement highlighted intensified upside risks to inflation and downside risks to growth, noting that the war has led to a sharp increase in energy prices.

“The upside risks to inflation and the downside risks to growth have intensified." — ECB Governing Council statement (ZeroHedge). Euro zone first-quarter GDP grew by 0.1%, below expectations, while headline inflation surged above 3% in April due to energy costs. The ECB reiterated a data-dependent approach, with no pre-commitment to future rate paths. Markets are pricing in three quarter-point hikes by year-end. rates at 3.50-3.75% on Wednesday, with an 8-4 vote and dissents on the statement's easing bias. The statement shifted language on inflation from "remains somewhat elevated" to "elevated" amid energy price surges. A Fed official stated that the policy stance is appropriate and not on a pre-set course.”

Oil prices spiked overnight, rebounding to levels not seen in four years, as expectations for a durable settlement faded. The Strait of Hormuz remains effectively closed, interrupting exports from the Persian Gulf. Global fuel shortages are expected to worsen over the summer, with stocks of crude and refined fuels depleting rapidly.

One source compared the situation to the 1973/74 Arab oil embargo, where full impacts took three to six months to materialize, leading to economic contraction. Iran's parliament speaker called for national unity against the U.S. blockade, which he said seeks to cause internal collapse.

Western intelligence estimates suggest Iran may exhaust storage for its produced oil within two weeks.

U.S. officials are set to brief President Trump on plans for potential military action in Iran, including short strikes targeting infrastructure to address the nuclear deadlock. Axios reported this briefing is scheduled for Thursday.

“Iran may run out of oil storage within weeks under the US blockade pressure." — Jerusalem Post. Fears of stagflation are growing in Europe, with the ECB likely to raise rates in June unless energy prices ease and the war ends. Bloomberg reported a very small chance of avoiding hikes if the conflict persists. Corporate earnings provided some counterpoints, with Amazon, Meta, Alphabet, and Microsoft all beating EPS and revenue estimates, though stock reactions were mixed: Amazon up 2.7%, Meta down 7.0%, Alphabet up 7.1%, and Microsoft up 0.3%. Caterpillar reported third-quarter EPS of $5.54 and revenue of $17.4 billion, both above estimates, with shares rising 4.7%. Upcoming data includes U.S. PCE price index, GDP growth, and jobless claims, alongside speeches from central bank officials. The situation remains fluid, with central banks emphasizing resilience but warning of prolonged impacts if the conflict continues.”