ECB sees two scenarios as Iran war raises stagflation risks — Boris Vujčić

As Bloomberg reports, Vujčić, who will become vice president of the European Central Bank in June, said officials will likely soon learn whether the consequences of the fighting will require interest rate hikes. However, he warned that recent developments point to a growing risk of rising consumer prices combined with weak economic growth.

“We do not see stagflation, but the risk of it is increasing,” said the head of Croatia’s central bank.

ECB officials, including Bundesbank President Joachim Nagel, have indicated that the ECB may need to consider raising interest rates at next month’s meeting, as surging energy prices begin to fuel inflation. Vujčić remains open-minded on the issue.

According to new ECB forecasts, consumer prices in the eurozone are expected to rise by 2.6% this year under the baseline scenario — significantly higher than previously projected. In an extreme scenario, where disruptions to oil and natural gas supplies persist, inflation could reach 6.3%.

“We are already deviating from the baseline scenario toward worse scenarios,” Vujčić said.

He sees two options if the ECB decides that borrowing costs need to rise: start early and increase rates gradually in small steps, or start slightly later and raise rates more sharply.

“It is better to start with small steps and then monitor developments,” Vujčić said. “It is still too early to say, but we will soon know whether we need to act or not,” he added.

Markets are pricing in a deposit rate increase of as much as three-quarters of a percentage point this year from the current level of 2%. Economists expect policy tightening to be inevitable, forecasting the first of two moves in April or June.

“I do not think one or two rate increases would significantly harm the economy,” Vujčić said. “But we must ask whether they are needed at all, because some also argue that one or two rate cuts would not provide much benefit to the economy.”

Traders believe there is a high likelihood of some irreversible damage to energy infrastructure in the Persian Gulf and a prolonged closure of the Strait of Hormuz, even after President Donald Trump delayed for five days the threat of strikes on Iranian power facilities pending the outcome of negotiations.

“De-escalation of the conflict and the reopening of the Strait of Hormuz would be very good news, which would certainly reduce inflationary pressure and, consequently, the likelihood of interest rate hikes,” Vujčić said.

Earlier, Israel and the United States said they had carried out strikes on Iran — operations dubbed Rising Lion (Israel) and Epic Fury (United States) — on Feb. 28. In response, Iran launched ballistic missiles at Israel. Iranian missiles and drones also targeted U.S. military bases in Qatar, the United Arab Emirates, Bahrain, Kuwait, Saudi Arabia and Jordan.

On March 2, QatarEnergy officially confirmed the suspension of LNG and related production at its complexes in Ras Laffan and Mesaieed.

It was also reported that in 2025, QatarEnergy shipped 80.97 million tons of LNG, with production capacity of up to 142 million tons per year. According to traders, the company supplies 90–95% of its gas under long-term contracts and 5–10% on the spot market. Its largest investors include global energy majors ExxonMobil, Shell, TotalEnergies, Eni and Conoco.

Qatar declared persona non grata the Iranian embassy’s military and security attaché, as well as their staff, following the strike on the industrial city of Ras Laffan.

According to data from analytics platform Kpler, Europe received 7% of its total LNG supplies from Qatar in 2025.

On March 9, 2026, oil prices reached their highest level since 2022.

On March 10, 2026, Trump’s statement on the Middle East moved oil prices.

The same day, March 10, 2026, the International Energy Agency proposed releasing strategic oil reserves to stabilize global prices, which surged after the U.S. and Israeli military operation against Iran.

On March 19, it was reported that Iran attacked the Ras Laffan industrial zone in Qatar twice within less than 12 hours, causing extensive damage and fires at one of the world’s largest LNG hubs.

The European Central Bank outlined the worst-case economic scenario stemming from the war in Iran.