Oil and gas prices have risen since the war in Iran, with oil up 44% to date and gas up 64%. This is compared with 2022, when oil rose about 30% from 23 February to a peak in early June, and gas rose about 210% from 23 February to a peak in late August.
Early March 2026 data show limited pass-through beyond energy prices in the Eurozone. Demand is weaker than in 2022 and supply constraints have eased, which may reduce wider price pressures.
Eurozone Inflation Backdrop
Central banks are described as more responsive after the 2021–2023 inflation period. The approach aims to curb spillover, wage effects, and changes in inflation expectations if energy costs rise further.
March 2026 indicators include an improvement in the manufacturing PMI. The ‘output price’ component did not rise, and the drop in household sentiment about personal finances was smaller than in March 2022.
The new energy shock from the conflict in Iran is raising concerns, but we see a different situation than the one we faced back in 2022. While oil and gas prices have jumped, the wider economic picture is much softer now. This suggests the risk of runaway inflation like we saw after the Ukraine war is lower.
We believe the surge in prices will be less severe this time around. Back in 2022, demand was booming from post-pandemic reopenings and supply chains were still broken, but today demand is weaker and those supply issues have eased. The latest flash estimate for Eurozone inflation from Eurostat on April 1st showed a rise to 2.7% in March, but core inflation, which excludes energy, actually ticked down slightly to 2.9%, supporting this view.
Trading Implications For Rates
Central banks have also learned from the 2021-2023 inflation shock and are ready to react faster. They will not hesitate to counter any signs of price pressures spreading into wages or longer-term expectations. This proactive stance contrasts with 2022, when we felt policymakers were often behind the curve.
Looking back, the European Central Bank was forced to raise its main deposit rate from -0.50% to 4.00% between July 2022 and September 2023 to control inflation. Given the current weaker backdrop and the ECB’s new vigilance, a rate-hiking cycle of that magnitude seems highly unlikely. This implies that market pricing for future rate hikes may be too aggressive.
For derivative traders, this suggests opportunities in selling interest rate volatility. The market may have overreacted to the energy headlines, creating elevated premiums in options on short-term interest rates like EURIBOR futures. Selling out-of-the-money calls could be a viable strategy, betting that the ECB will not be forced into the kind of panic-hiking we saw a few years ago.
Positive signals from recent data support a more measured outlook. The March 2026 manufacturing PMI for the Eurozone nudged into expansionary territory at 50.8, yet its output price component remained stable. This indicates that firms are not yet passing on higher energy costs, a stark difference from the broad-based price pressures of March 2022.
