Oil at $98 and the ECB on the brink of a second hike: the euro balances between inflation and recession

Author and editor‑in‑chief: Vitaliy Kisterny 08.09.2026 20:15:00

On September 7, 2026, Brent oil trades around $97–$98 per barrel, having risen almost 8 % over the previous week.

The reason is a new escalation between the United States and Iran. American forces attacked Iranian tankers near the island of Khark – the country’s main oil export hub. Iran responded with strikes on ships in the Strait of Hormuz. Through the strategic waterway, where previously more than 130 vessels passed per day, now only a handful do.

Against this backdrop, the European Central Bank, which will meet on September 10, is almost certainly going to raise the rate to 2.75 % – a second hike in a year. Inflation in the eurozone accelerated to 3.3 % in August from 2.9 % in July, and the culprit is an energy shock. However, high oil is a double‑edged sword for the euro: it forces the ECB to tighten policy, but at the same time it hits the eurozone economy.

Photo: © Belnovosti / euro. Author Vitaliy Kisterny Oil shock returns: Brent at $98

The escalation between the United States and Iran over the weekend pushed oil prices to new highs. On Saturday, American forces attacked three Iranian tankers, including one near the island of Khark – the country’s main oil export hub. The Islamic Revolutionary Guard Corps responded with strikes on three tankers passing through routes Tehran considers unauthorized. On Sunday, Iran announced that it had downed an American drone in the Strait of Hormuz.

As a result, Brent oil on September 7 trades around $97–$98 per barrel, having risen almost 8 % over the previous week. American WTI holds around $92.6. Iran also announced the creation of a new restricted zone near Hormuz, and OPEC+ kept October quotas unchanged. Markets price in that normalization of Middle East oil supplies may take time.

ECB preparing for a hike: rate to 2.75 %

On September 10 the ECB will hold a meeting, where it will almost certainly raise the deposit rate by 25 basis points to 2.50 %. This will be the second hike in a year – the first took place in June. However, as CNBC notes, the inflationary impulse from higher oil prices is the main reason why the ECB is expected to raise the rate to 2.75 % on Thursday. Markets also price in a 75 % probability of another hike to 3.0 % by December.

Inflation in the eurozone accelerated to 3.3% in August from 2.9% in July. The main reason is an energy shock. Europe imports most of its energy, and expensive oil is a serious blow to households and businesses. The core inflation indicator (excluding food and energy), on the contrary, fell to 2.4%, indicating that inflation remains predominantly energy‑driven.

Why the euro hasn’t risen, despite expectations of a rate hike

It would seem that expectations of an ECB rate hike should strengthen the euro. However, the EUR/USD pair on September 7 trades around $1.1615–$1.1618, which is almost the same levels as a week ago. Why doesn’t the euro get the usual support?

The answer is that the ECB rate hike is already almost fully priced in. The main intrigue now is not the hike itself, but what the ECB chief Christine Lagarde will say after it. A “hawkish” signal that rates could rise further could push European bond yields up and support the euro. A “dovish” signal that this is the last hike could weaken the single currency.

Moreover, expensive oil is a double‑edged sword for the euro. On one hand, it forces the ECB to tighten policy. On the other, it hits the eurozone economy, which is already teetering on the brink of recession. Europe has found itself in a trap: high energy prices fuel inflation, but at the same time weaken economic growth.

What’s next: US CPI and ECB signals

The coming days will be decisive for the EUR/USD pair. On Friday, US inflation data will be released. If they turn out “hot”, the dollar could strengthen, and the euro risks falling below $1.16, exposing support around $1.1550 and $1.1500. If the data are “cold”, the pair could test resistance at $1.1660–$1.1700.

But the main event of