Author: IntaCapital Swiss

Euro Area Inflation to Stay Elevated

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Senior figures from the ECB (European Central Bank) suggest that there is a second round of increased energy prices, which they anticipate will lead to persistent, higher inflation with increased costs hitting consumers’ pockets. Indeed, the ECB’s Chief Economist Philip Lane said, “we are now witnessing a second wave of price rises, not only in oil but also in gas. We believe this second wave of energy price rises should lead to higher and more persistent inflation, before a decline toward our target from mid-2027 onwards.

Analysts suggest that following the last increase in interest rates on the 10th September 2026, it is expected that the ECB will hike rates for the third time since the start of the US/Iran war on 28th February this year, possibly as soon as next month. Experts suggest that in the coming months, inflation for Q4 in the Eurozone could reach as high as 4.00%, with the latest ECB projections suggesting the average rate of inflation for 2026 being circa 3.00%. However, recent data suggests the euro area is experiencing its highest inflation acceleration in nearly three years with headline consumer growth jumping to 3.30%.

Household costs for Q4 within the eurozone will be driven by rising inflation with distinct cost pressures concentrated in energy, housing and food. Data reveals nearly 46% of household consumption goes to housing, water, energy, food, non-alcoholic beverages and transport. Indeed, figures show that energy inflation hit 14.30% by the end of June 2026, and will only increase further going into winter. Some economists are predicting that a harsh winter will weigh heavily on the consumer’s pocket.

How the Current Middle East Crisis is Stoking Inflation and Negatively Impacting Growth

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Once again, Benchmark Brent crude oil has surpassed the $100/bbl mark this month, stoking inflationary pressures globally – including across the UK, EU, and United States. Japan is concerned about inflation overshooting its 2.00% target, while price growth remains elevated in Australia and negative pressures persist across Southeast Asia. Sadly, the conflict between the US and Iran carries on unabated, with experts advising that tensions have reached a critical flashpoint with President Trump mulling over whether or not to begin devastating military action, and Iran promising unlimited retaliation and a continued blockade of the Strait of Hormuz. 

The on-going war between Ukraine and Russia is putting further strain on global energy supplies, with experts warning that the autumn and winter may witness a serious supply shock with negative consequences to both global growth and inflation. However, since the invasion of Iran on the 28th February this year, and due to the unexpected resilience in the oil and gas trade, negative forecasts for global growth turned out to be incorrect. Indeed, thanks to a resilient global trading system, China’s pull-back from the crude market, the release of 400 million barrels from strategic reserves, and global preparations for energy shortages, crude oil prices ultimately held below previous record peaks. 

Data released shows global growth on an annualised basis in Q2 of this year, growing at the same pace as Q1, (figures excluded the six members of the Gulf Cooperation Council*), with one expert also pointing to the huge investments in data storage and the boom in artificial intelligence (AI) being partially responsible. However, energy prices are finally making themselves felt, as on the 10th September, the ECB (European Central Bank) increased interest rates by 25 basis points, citing inflationary pressures and risks to the downside of economic growth. Elsewhere, and last week, both the Federal Reserve (first time since 2023) and the BOJ (Bank of Japan) increased interest rates by 25 basis points, both citing inflationary pressures due to the above mentioned conflict. 

*Gulf Cooperation Council –  This council consists of six members including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Founded in Riyadh, Saudi Arabia on 25th May 1981, its purpose is a political and economic alliance focused on security, trade and social development. 

Whilst the price of oil is considered to be an inflation barometer for the global economy, it is the price of refined fuels that have traditionally fed through to inflation. Since the start of the Middle East conflict, refined fuel markets, including diesel, petrol, and jet fuel, have been tighter than the crude oil market. This is mainly due to high shipping costs and a lack of adequate refining capacity. Indeed, due to the Ukraine/Russia conflict, Russian production (despite being the third largest refiner), is at its lowest for over twenty years as sustained drone attacks by Ukraine has cut production this year by circa 30%. This year, diesel surpassed the $200 p/bl mark in both Europe and the US, with consumers in the US seeing $6.00 per gallon for the first time in recorded history. 

Many observers note that AI investment has sustained growth, but the narrative surrounding AI and the global economy has shifted dramatically. According to analysts, AI remains a pillar of economic activity, but fears of a major tech-driven slowdown have taken centre stage following unprecedented calls by senior financial officials and from the industry’s own leaders to cut back on development. In a rare show of unity, the CEO’s of Open AI, Microsoft and DeepMind called to slow the development of increasingly capable AI, as safety advocates warned of existential threats. Last week on September 14th, AI and semiconductor shares took a nosedive across global markets prompting debates as to whether the massive, debt-fuelled AI infrastructure boom was facing a structural downshift. 

Experts suggest that a structural down shift within the AI arena, together with a prolonged energy shock emanating from the Middle East crisis, could severely cripple global economic expansion and risk a prolonged period of global stagflation. In today’s global economy, analysts advise that there is a tug-of-war between an energy supply shock – currently driven by the US/Iran conflict, the loss of the Saudi Arabian East/West Pipeline, the Strait of Hormuz blockade, and Houthi insurgent incursions on two strategic Red Sea islands – which is depressing economic growth. On the other hand, massive AI investment is a counter prevailing force. If the AI engine stalls while energy prices remain high, the global economy loses its cushion and growth could fall dramatically. 

Bank of Japan Increases Interest Rates

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18th September 2026

Today, the Bank of Japan (BOJ) raised its benchmark interest rate by 25 basis points to 1.25%, pushing borrowing costs to a new 31-year high and marking the highest interest rate level since 1995. The BOJ’s Monetary Policy Committee (MPC) decision to raise interest was passed by seven votes to two, marking the central bank’s sixth hike under the governorship of Kazuo Ueda. In a widely expected decision, the BOJ’s Policy Board voted by seven votes to two to increase interest rates, with analysts suggesting that increase comes amidst severe global and domestic economic pressure.

The move by the BOJ comes as many major central banks (apart from the Bank of England) are raising interest rates as inflation is being pushed up due to the energy crisis, which is a result of the United States/Iran conflict in the Middle East. The increase in the policy rate comes just three months after the BOJ voted to hike rates – the shortest interval between increases since 1990. It arrives at a time when US Treasury Secretary Scott Bessent has been actively pressing Japan to raise interest rates.*. 

*Scott Bessent/BOJ’s interest rates – The US Treasury Secretary has been aggressively pushing the BOJ to raise interest rates to protect the US Treasury market, strengthen the Japanese Yen, and curb regional currency weakness. Indeed, with Bessent’s repeated calls starting earlier this month to Governor Ueda to hike interest rates, money markets had almost fully priced in the chance of a rate increase at the September policy meeting.

After the policy meeting, Governor Ueda noted that underlying inflation is approaching 2.00%, the banks focus had shifted from pushing prices up to target to guarding against inflation overshoot. He was quoted as saying, “if risks of underlying inflation overshooting 2.00% materialise, that could have a negative impact on Japan’s economy”, and in his strongest remark to date on the central bank’s resolve to combat price pressure through continued rate hikes It’s important to stabilise underlying inflation at 2.00%. Our policy phase has changed”.

The Governor went on to stress that back-to-back rate hikes of 50 basis points would not be ruled out, but stressed that the BOJ did not want to be forced into large moves that might unsettle financial markets, so the bank would move pre-emptively. Experts suggest that the Governor is keeping his options open to include further increases in interest rates, whilst keeping a close eye on the state of inflation in order for it to be stabilised. BOJ officials noted that economic and price developments are moving in line with its baseline forecast, however, there is a risk of underlying inflation moving away from its 2.00% target.

As for the future, some analysts expect the central bank to lift interest rates to 1.50% by the close of business 31st March 2027 and to 1.74% by the close of Q2 2027. Experts advise that Japan is heavily dependent on energy imports purchasing circa 85% – to 90% of its total energy needs, and if the Middle East conflict carries on into 2027, the interest rates for 2027 predicted above may well turn out to be on the conservative side.

Bank of England Keeps Interest Rates on Hold

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17th September 2026

Today, the Bank of England’s (BOE) Monetary Policy Committee (MPC) voted by six to three to keep interest rates on hold, with the naysayers voting to raise the interest rate to 4.00%. The decision to hold rates steady comes despite the BOE’s counterparts, the European Central Bank (ECB) and the Federal Open Market Committee (FOMC) of the United States Federal Reserve, both increasing interest rates by 25 basis points due to rising inflation. In the United Kingdom, inflation has been rising to 3.10% (BOE benchmark target for inflation is 2.00%), but Governor Bailey feels that global energy costs have a limited effect on price and wage settings.

On the inflation front, data released yesterday by the Office of National Statistics (ONC) showed August’s inflation figure higher than the July figure of 2.90%, with rising petrol prices being the main driver to the current figure of 3.10%. Once again, the MPC voted as they did in the July meeting by six to three to hold interest rates, showing the committee is still deeply divided on how to respond to the surging energy prices caused by the on-going Middle East crisis being acted out between the United States and Iran. Experts suggest that the wait-and-see approach to inflation by the MPC will be severely tested by the ever increasing energy prices.

Analysts advise that a key point that emerged from yesterday’s data regarding the increase in headline inflation showed the wider economy had suffered less than expected from the spillover of increasing energy prices. The six MPC members who voted to hold interest rates had latched on to this piece of data as a major reason to keep interest rates on hold, despite the recent increase in the Middle East conflict and Saudi Arabia having to close its East West pipeline, a critical asset that bypasses the Strait of Hormuz. Other inflation data released by the ONC showed service inflation (a gauge for domestic pressure) holding steady at 3.40% and core inflation (excluding food and energy) also holding steady at 2.60%.

Governor Bailey noted that the global energy shock has so far had a limited effect on price and wages in the UK and he went on to say, “the longer volatility persists, the bigger the impact it will have on inflation and the more likely it is we will need to raise the bank rate”. Experts suggest that a hike in interest rates is likely on the table for the next meeting of the MPC on 5th November 2026, who today confirmed it stands by ready to act, with risks being tilted to the upside. Analysts note that following recent economic data and MPC statements, money markets expect inflation to hit 4.00% in 2027. As a result, traders have fully priced in a rate hike by the end of the year, alongside a 50% chance of a second hike. With chances of the war in the Middle East coming to an end in the near future being virtually zero, analysts say the money market bet for one rate rise before the end of the year is a near certainty.

The Federal Reserve Hikes Interest Rates

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16th September 2026

Today, in defiance of President Donald Trump’s call for lower interest rates, and for the first time since 2023, the Federal Reserve’s FOMC (Federal Open Market Committee) raised interest rates by 25 basis points to a range of 3.75% – 4.00%. Experts and financial markets predicted the rate rise as Federal Reserve Chairman Kevin Warsh tries to head-off increasing inflation due to the Middle East war between the United States and Iran. This has pushed the price of the Benchmark Brent crude oil higher and higher, where it currently sits trading at circa $105.45 p/bl (per barrel), having already pushed through $108 p/bl earlier in the day. 

After the rate increase announcement, officials of the FOMC advised that the rise “will support a timelier return” to the Federal Reserve’s inflation benchmark target of 2.00%. Whilst this target has not been reached for around 5 ½ years, the officials added “the committee will deliver price stability”, all of which was reiterated by Chairman Warsh at a press conference post FOMC meeting. The decision by the FOMC to raise rates was approved unanimously by twelve votes to zero, and the FOMC indicated that another rate rise was on the cards due to persistently high inflation – with indications suggesting the target figure of 2.00% will not be reached until 2029. 

After the meeting, Chairman Warsh acknowledged previous concerns regarding inflation commenting that too many categories of products and services were showing annualised price gains above 3.00% on a six and twelve-month basis. He went on to say that, “we removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives. This summer’s inflation readings do not tell me that underlying trends have meaningfully improved”. Data provided by the BLS (Bureau of Labour Statistics) revealed core inflation rose at a higher-than-expected rate in August. This was a major factor in the decision to raise interest rates, reflecting broader concerns that inflationary pressures are spreading beyond the Middle East war, surging energy prices, and the temporary effects of tariffs.

On the future of interest rates, projections released today by the Federal Reserve shows sixteen officials advancing the possibility of a further rate rise before close of business 31st December 2026, with the median projection for 2027 pointing to no additional rate increases for 2027. However, eight policymakers suggested no further increases in rates for this year, but projected a 0.25% increase in 2027 to a range of 4.00% – 4.25% by the end of year 2027. Interestingly, the rate rise was in defiance of Donald Trump’s wishes to have the lowest borrowing cost in the world, and it should be remembered that Chairman Warsh is the President’s pick, and when the previous Chairman Jerome Powell defied the President on interest rates, he suffered a series of highly personal attacks. 

Analysts advise that financial markets in a hawkish shift anticipate a further 25 basis point increase in interest rates before the end of the current year and have priced in a 57.40% probability. The surge in bet rate hikes across money markets is being fueled by what experts describe as a mix of persistent macroeconomic factors and official central bank projections. As the Middle East conflict continues unabated with no end in sight, and with the Saudi East West pipe line (avoids the Strait of Hormuz) now closed, the potential for inflationary increases in the coming months is ever present and the markets could see more hawkish bets regarding rate increases before the end of the year.

Global Energy Crisis Deepens

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As the United States/Iran conflict widens, Saudi Arabia has closed its crucial east/west pipeline after it was attacked by drones launched from Iraq, and officials confirm the attack originated in the southeastern province of Maysan. Saudi officials have yet to announce how badly the pipeline has been damaged, however, the president of Lipow Oil Associates suggested that a pump station had been seriously damaged and that engineers may be able to bypass the station resulting in a lower output, though on-line pictures show that repairs may take months. A meeting between the gulf states and Iran to be held in Salalah regarding the Strait of Hormuz has subsequently been cancelled due to the pipeline attack by Iran.

*Saudi Arabian East/West Pipeline – This pipeline is known as the Petroline and stretches for 746 miles from the Abqaiq oil fields in the eastern province (close to Bahrain and Qatar on the Persian Gulf coast) to the port city Yanbu on the west coast by the Red Sea. The pipeline was built during the 1980’s allowing Saudi Arabian oil exports to bypass the tanker war in the Persian Gulf, which was a result of the war between Iran and Iraq. The pipeline serves as a strategic and critical lifeline not only to Saudi Arabia but to the global economy, and is currently pumping 7 million barrels a day, which is the pipeline’s maximum capacity. 

As result of the pipeline closure, the Benchmark Brent Crude price has risen and is trading today at circa $107.84 p/bl having briefly gone through the $108 p/bl mark. WTI (West Texas Intermediate) is also up, trading within a range of circa $101.81 p/bl – $103.86 p/bl, having recently surged past the $100 p/bl mark. During the past week, oil prices have continued to rise due to the on-going conflict in the Middle East, and in the US, consumers saw the retail price of diesel shoot past $6.00 per gallon, being a record price for the fuel. Experts note that supply chain difficulties are the reason for the recent surge in energy prices, and the longer the east/west pipeline remains shut, there remains the potential for further increases in energy prices. 

Furthermore, Iranian backed Houthi rebels have been advancing towards coastal areas of the Red Sea which border the strategic Bab el-Mandeb Strait or Gateway*, and with the Houthis attempting to seize the Yemeni port city of Mokha, could well impact maritime security in the area – resulting in pushing crude oil prices even higher. The Houthis have already been disrupting shipping in this area through its control of Hodeida, another port city, and if they take control of Mokha this would most certainly see the rebels tightening its grip on the strait.

*Bab el-Mandeb Gateway – Often translated from Arabic as the “Gate of Tears” or the “Gate of Grief”, possibly an apt description considering the current state of affairs in the Middle East. It is located between the Horn of Africa and the Arabian Peninsula and is one of the world’s most critical maritime chokepoints, as well as a crucial shortcut between Europe and Asia. Historically, the gateway has handled circa 10% – 12% of all global trade and acts as a primary artery for energy transportation between Asia, the Middle East and Europe. Analysts advise that millions of barrels of petroleum products transit the gateway daily and its closure will have a direct effect on the global economy.

Elsewhere, European gas prices have had five weeks of consecutive gains, and at the start of this week continued to head north as risks to supply were compounded by the closure of the east/west Saudi pipeline. Due to the Middle East confrontation, LNG supplies from Qatar have been crippled and Europe is heading into winter with its lowest level of gas storage for twenty years. 

Today, the competition is cut throat for LNG cargoes that do not have cross geographically charged checkpoints, and as winter approaches, experts advise there is the potential for a global fight for fuel. Data shows that the competition for LNG is intensifying in Asia where spot prices for LNG surged to levels not seen since 2022, and as buyers in Asia and Europe compete for alternative cargoes, the price for European natural gas has dramatically risen.

The IEA (International Energy Agency) has warned that oil consumption for the remainder of 2026 will fall and have accordingly cut forecasts for oil demand as the Middle East Conflict between the US and Iran continues unabated. The IEA projects that the drop in oil demand for 2026 will be 2.5 million b/pd (barrels per day), and due to the current crisis, it is estimated there will be a deeper shortfall in supply than originally advised. 

Forecasts for Benchmark Brent Crude Oil at the close of 2026 vary among major financial institutions and energy advisory firms: JP Morgan projects $78/bbl, HSBC has revised its estimate to $90/bbl, the EIA (U.S. Energy Information Administration) predicts $89–$90/bbl, and Barclays maintains an average forecast of $100/bbl. Some analysts predict even higher prices, but the world waits to see if there is any conclusion to this conflict on the horizon, as consumers globally see their costs of living going forever higher.

Escalation in the Middle East Crisis as Brent Crude Hits the USD101 Mark

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Benchmark Brent Crude oil climbed above $101, hitting its highest price per barrel since July this year, with recent prices being quoted at $101.69 p/bl (per barrel) with West Texan Intermediate trading at circa $96.14 p/bl. Increased concerns about the shipment of crude oil through the crucial Strait of Hormuz, due to escalating attacks within the region along with the Iranian-backed Houthi militants targeting Saudi Arabian energy facilities, have been responsible for driving up the price of crude oil. 

In the meantime, the Iranian media have announced that the country will not back down in the face of increased strikes from the American task force, and have promised to escalate their counterstrikes if the United States continues to target infrastructure and oil tankers. Whilst their leaders acknowledge that the country is suffering from severe economic pain, they feel that the existential threat they are facing from the US leaves them no choice but to carry on fighting. 

The US/Iran war has now entered seven months of hostilities, with comments by officials on both sides suggesting that there is little chance of the war ending in the near future. As proof of this, on Tuesday a US warship was forced to evade an attack by Iranian ballistic missiles and in response destroyed five Iranian energy tankers, with Iran then launching twenty missiles at an airbase in Jordan currently being used by the US. President Trump has continued his dialogue, suggesting that Iran is at the end of the road and the war will end immediately after the mid-term elections in November, which many observers suggest is nothing more than a gesture to the American voters.

Experts confirm that one of the main planks of the White House’s war with Iran was that the Iranian people would rise up and oust the government, but a mass uprising late last year due to severe economic pressures only led to thousands of innocent people being slaughtered by Iranian authorities. The current blockade on the Strait of Hormuz has stopped Tehran from exporting most of its petroleum, plus, they are unable to import a cross section of goods vital to the populace and the economy. Officials in the Iranian government have said that the US must go back to the failed Memorandum of Understanding signed in June if any talks are to take place. 

Benchmark Brent Crude oil has increased by circa 70% since the start of this year, and today, November settlement briefly went above the $102 p/bl mark, though it is still well below its March/April 2026 wartime peak of $126.41 p/bl. Some experts suggest that the price of Brent Crude due to supply chain conditions could reach $120 p/bl by close of business 31st December 2026.  On the diesel front, analysts advise that the current crunch in the global diesel refining sector will keep prices elevated due to tight supply in this arena. The market is also having to cope with Ukrainian drone strikes on refineries in Russia, which has resulted in Russian authorities extending the current ban on diesel exports. 

Experts suggest that the big loser in the diesel market will be North West Europe, as the onset of the winter months will produce a dramatic increase in consumption of this energy product. Whilst exports of diesel from the United States have partially alleviated tightness in the European market (import dependent), analysts suggest that this will not cover the increase in consumption come the winter months. Market observers note that the war is set to continue despite briefings to the contrary from the White House. In fact, no lesser figures than US Vice President JD Vance and Secretary of State Mario Rubio have both suggested that the Middle East conflict could run through to the end of President Trump’s presidency in January 2029.

Escalating Yields of Global Sovereign Bonds

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Earlier this week, global sovereign bond yields surged to multi-decade highs as hopes faded for a US/Iran/Israel peace deal, which has kept oil and energy prices elevated — escalating fears for increases in inflation. The 30-year US Treasury yield went above the 5.3% yield (the highest since 2007, with long-term borrowing costs across European and Asian benchmarks spiking to multi-decade highs). According to experts, the massive sell-off in global debt is due to elevated oil prices fuelling inflation fears, highly elevated government fiscal deficits, and massive corporate debt issuance for AI infrastructure.

Analysts advise that investor concerns regarding inflation, government debt and the debt laden AI boom, have converted into selling longer maturity bonds with a heavy price being paid by governments as their costs of borrowing keep rising. Indeed, analysts confirm that in Germany, government costs of borrowing were this week at their highest level since 2011. In France, government borrowing costs were also at their highest point since 2008. Meanwhile, in Japan, government bonds were close to their all-time high recorded in June 1984, and the United Kingdom equivalent long-dated yields were approaching 6%.

Analysts point to AI “hyperscalers” who have dramatically increased borrowing, while governments continue spending at a vastly increased rate. This has been a key factor in pushing up government bond yields, as buyers demand higher returns to keep purchasing the avalanche of bonds coming onto the market. Unsurprisingly, when the US Department of the Treasury held a $25 billion 30-year Treasury bond auction on Thursday 13th August this year, the sale cleared at a high yield of 5.216%, marking the highest borrowing cost for a 30-year bond auction since 2001. Experts pointed out the yield was driven by swelling budget deficits and strong investor demand for higher returns.

*AI Hyperscalers – Defined as large-scale cloud providers or tech giants that operate massive, globally distributed data centres which are packed with specialised chips to train, host, and scale artificial intelligence models. They supply the immense computing power and infrastructure required for the modern AI boom. The biggest AI hyperscalers are: AWS (Amazon Web Services), GCP (Google Cloud Platform), Meta Platforms and OCI (Oracle Cloud Infrastructure), and together, these companies control over 70% of the world’s total AI computing infrastructure.

Experts advise that competition for capital has reached levels rarely seen in recent times. Driven by the rapid AI build-out and other factors mentioned above, this capital scarcity is directly pushing bond yields higher. Data released shows that so far this year, Alphabet, Amazon and Meta alone have issued circa $220 billion in bonds which almost double the total amount of bonds issued in 2025 (which stood $108 billion at close of business 31st December 2025).

In the US, Treasury Secretary Scott Bessent announced a fresh attempt to rein in long-term borrowing—doubling the size of liquidity support for 10- to 30-year Treasuries from his original announcement two weeks ago. This had the effect of lowering the 30-year yield by circa 10 basis points to 5.18%, encouraging a small domino effect on long dated government bonds in other countries. However, this has only increased the Treasury Department’s borrowings, and with the public debt now in excess of $40 trillion for the first time, experts suggest that this is only a temporary fix. 

Mid-term elections are in November, and with consumers having to pay higher mortgages, fuel costs, and energy bills, a voter backlash could lead to a lame-duck presidency for the next two years. There is no end in sight for the Middle East conflict, and if Democrats regain control of the Senate, as pollsters currently expect, the US could be rudderless for two years, with long-dated bond yields perhaps elevating even higher than this week’s record peaks.

The Disconnect Between Fuel Prices and the Price of Crude Oil

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On the 9th August, the Benchmark Brent Futures for October hit $84.11p/bl (per barrel) which is still well below the highest price per barrel of $126.41 recorded on 30th April 2026, as Iran continues to demand tougher concessions in on-going negotiations with the United States. Global Benchmark Brent Crude was trading at circa $72.30p/bl on 27th February 2026, the day before the USA launched its attack on Iran, and even though the price is currently about $14p/bl higher, the price for diesel and petrol remain inflated at the pumps due to record premiums over crude oil.

Experts advise that if indeed the Strait of Hormuz reopens, consumers and businesses will not see a reduction in fuel at the pumps, as the gap between crude oil and its refined products has spiked in recent weeks. Analysts note that the diesel commodity is currently trading at a premium of roughly $70 per barrel over crude oil. While slightly down from its recent record high of $90 per barrel, this remains far above historical levels of around $20 per barrel.

Analysts advise that this current disconnect is due to the global shortage in refining capacity, with some of the world’s largest refiners being cut off by the closure of the Strait of Hormuz. Furthermore, China is currently restricting exports of refined products, and Ukraine’s drone attacks on Russia’s refineries has not helped matters. 

A number of experts point out that global inventories are diminishing by the day and Europe is particularly vulnerable due to years switching investments to green energy, ignoring investing in refineries, and are now reliant upon imports for much of their domestic consumption. In Europe, analysts advise another reason that diesel is trading at a higher than normal premium is because the marginal barrel price of diesel in Europe is becoming more expensive, due to the market paying a higher price to pull replacement barrels into a physically tight European system.

Europe is also facing upward pressure on diesel and petrol prices as energy supply chains begin to run out of water. The water levels in the Rhine are reaching record lows which is restricting barge traffic, and in turn it has pushed gasoil freight rates to record levels. Authorities will now have to adapt energy supply routes to these critical weather conditions, which experts estimate will not be ending any time soon, placing further upward pressure on fuel and energy prices. In fact, experts warn that Europe could face a serious diesel shortage this winter due to limited domestic refining capacity and its heavy reliance on imports. 

Experts note a deal to reopen the Strait of Hormuz remains distant. Tehran has rejected direct talks with the United States, and even though Iran and Oman are apparently close to agreeing terms on shipping lanes within the Strait, Iran has said they will not reopen the Strait unless the United States accede to their demands. The US/Iran/Israel continues to drag on, and analysts advise that refined crude products could well increase in price as the months go on.

Bank of England Keeps Interest Rates on Hold

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Today, the Bank of England’s (BOE) Monetary Policy Committee (MPC) in a split vote, voted 6 – 3 to keep interest rates on hold in a range of 3.5% – 3.75% for the fifth time in a row. The three members of the MPC who voted to increase interest rates by 25 basis points, to 4.00%, were external members: Catherine Mann, Megan Greene and Chief Economist Huw Pill. Once again, officials reiterated earlier statements, and maintaining guidance stressed that “the panel were ready to act” to halt lingering inflation. 

UK officials are signalling that domestic price pressures are easing quicker than earlier predictions, despite tensions in the Middle East with an ‘on-again off-again’ war where currently, Iran and the USA have reopened hostilities. BOE officials further noted that there were clear signs of easing on the domestic inflationary front. They also highlighted evidence suggesting that higher prices and increased wage demands resulting from the energy shock were indeed scarce.

BOE Governor, Andrew Bailey, said after the meeting that, “There is little evidence of second round effects, although it is too early to take much comfort in that. Holding bank rate is appropriate as global conditions look to be more uncertain and inflationary, while domestic conditions are, on balance, more benign as regards the prospects for inflation”. Given the tone of the Governor’s take on today’s decision, experts suggest that the core of the MPC appear to be nowhere close to voting for an increase in rates. 

Some analysts believe that the committee could change their thinking if energy prices increase,second-round inflationary effects materialise, or the Middle East conflict escalates. Officials noted that inflation is currently below the level that the central had previously predicted, but the bank does expect that in the coming months, the economy will witness an increase in price growth. This means consumers will experience an increase in household energy bills alongside a fresh rise in costs at the fuel pumps.

The BOE has issued a number of inflation forecasts showing differing scenarios for the cost of oil and gas. First, they restored their original forecast from April, which was based on a prediction through to the 20th of July pointing to inflation hitting 3.2% by close of business 31st December 2026, before returning to circa 2.00%, the bank’s benchmark target in 2027. The second scenario which shows Brent Benchmark crude hitting the $100p/bl mark and remaining above that mark shows a pessimistic prediction of inflation reaching the 4.5% mark in Q2, 2027. The third scenario by Q2, 2027, shows inflation peaking at 3%, with a downgraded prediction of second round effects* if there is a faster resolution to the current conflict in the Middle East. 

*Second Round Effects – In these scenarios, second round effects are price and wage-settings stemming from the current shock that have the potential to raise Eurozone inflation beyond the near-term in a persistent manner.

Interestingly, in all of the above scenarios, GDP growth is predicted to be circa 1%  in 2026 and 2027, before gaining some positive traction in 2028. Experts suggest that the MPC’s concerns on second-round effects appear to have receded as there seems to be a more dovish attitude, suggesting that inflation will not negatively impact broader inflation. After the rate hold, the swaps and futures markets have trimmed their expectations for an increase in interest rates at the upcoming policy meeting on 17th September 2026, pricing in a roughly 40% implied chance for an increase in rates.

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