Price pressures may linger due to damaged energy assets, ECB's Makhlouf says
Context mode is active. Hover over any highlighted term to see its definition. Click a nested term to go deeper.
Despite a recent interim agreement between the US and Iran to reopen the Strait of Hormuz, European Central Bank Governing Council member Gabriel Makhlouf has warned that global price pressures will likely persist, citing extensive damage to critical energy infrastructure in the Middle East. Makhlouf emphasized on Tuesday that while the deal offered a brief dip in energy prices, the physical destruction of key production and export facilities means an immediate end to the energy shock is far from certain. This stark assessment underscores the deep, structural challenges facing global energy markets, forcing central banks like the ECB to maintain a hawkish stance against inflation. The scale of the damage is staggering: at least 17.1% of the Middle East's total regional energy capacity, or 4.9 million barrels of oil equivalent per day, is currently offline—a loss greater than Iraq's entire peacetime daily output. Notably, Qatar's Ras Laffan LNG complex, the world's largest, has sustained such extensive damage that full repairs could take up to five years, impacting 17% of global LNG supply and triggering force majeure declarations. These disruptions, compounded by uncertainties in shipping through the Strait of Hormuz due to potential minefields, are directly fueling the ECB revised inflation forecasts, which now project euro area headline inflation at 3.0% in 2026. As the ECB already hiked interest rates by 25 basis points earlier this month to combat these inflationary pressures, attention now shifts to the duration of supply chain normalization and energy asset recovery. With repair costs potentially exceeding $25 billion and global oil inventories forecast to fall significantly in Q2 and Q3 2026, the prospect of a 'higher-for-longer' energy price environment is firming up. Policymakers and businesses alike must brace for a protracted period of elevated energy costs, making a genuine return to pre-conflict supply levels a 2027 story rather than a near-term reality.