A member of the European Central Bank's Board of Governors, Governor of the Irish Central Bank, Gabriel Makhlouf, said that the bank may have to raise interest rates again if rising energy prices lead to the transfer of inflationary pressures to other sectors.
Makhlouf added, in an interview with the Irish Radio and Television Corporation “RTE,” that inflation is still higher than the bank’s target, but there are still no indications of what is known as “second-order inflationary effects,” which lead to the transfer of high energy prices to the prices of other goods and services.
He said: “If this happens, and energy prices remain high and its effects spread to other sectors, we will have to take measures again” to ensure that the inflation target is achieved.
Makhlouf had warned earlier this month, after the European Central Bank raised interest rates for the second time this year, that making additional large increases could harm economic growth.
Oil prices rose during the second half of Wednesday's session, with Brent crude exceeding the $100 level again, after the markets recently breathed a sigh of relief at the possibility of reopening the Strait of Hormuz to international maritime traffic, and pumping Saudi oil production to the markets.
By 12:43 GMT, Brent crude recorded an increase of about 1.03 percent in the spot market, reaching $100.27 per barrel, while West Texas Intermediate (American) crude recorded an increase of 0.25 percent, reaching $90.76 per barrel.
In the previous session, Brent crude had fallen to its lowest levels since September 8, recording $97.36 per barrel, while US crude touched its lowest level since September 1, earlier in Wednesday’s session.
Improved crude supplies from the Gulf region put pressure on the market, while diesel refining margins reached a record level, amid the possibility of imposing restrictions on US diesel exports.
The price premium for European low-sulfur diesel fuel over Brent futures contracts reached a record level of nearly $95 per barrel, after US President Donald Trump said that he supports the idea of banning diesel exports in order to reduce prices, which have reached record levels due to a shortage of global supplies.
Analysts and market observers warned that such a measure would not contribute much to alleviating the rise in energy prices, and could exacerbate supply disruptions and economic conditions around the world.
Europe has become largely dependent on imports of diesel and jet fuel from the United States since the US-Israeli war on Iran led to the disruption of supplies from the Middle East.
At a time when inflationary pressures are increasing globally due to the energy shock, the Organization for Economic Cooperation and Development expects inflation in Saudi Arabia to remain under control at 1.8 percent in 2026 and 2.1 percent in 2027, compared to 3.6 percent for G20 inflation over the next year.
This gap reflects a difference in the impact of the energy shock between economies, as the expected inflation rate in the G20 during 2027 is about 1.5 percentage points higher than its counterpart in Saudi Arabia, at a time when the organization expects the impact of high oil and gas prices and supply disruptions on global prices to continue for a longer period.
Temporary contraction
In terms of economic activity, the organization expects the Saudi GDP to contract by 1.8 percent during 2026, before returning to growth by 4.1 percent during 2027.
These expectations come at a time when official data show that the economy has been affected by the sharp decline in oil activity. According to the latest data from the General Authority for Statistics, real GDP contracted by 4.7 percent on an annual basis during the second quarter of 2026, affected by a 24.8 percent decrease in oil activity, while non-oil activity grew by 0.9 percent, and government activities increased by the same percentage.
On a quarterly basis, the real domestic product decreased by about 4.8 percent, with a decline in oil activity by 21.6 percent, compared to a decrease in non-oil activity by 0.4 percent and a growth in government activities by 0.2 percent.
These data provide a background for the organization’s expectation that the economy will return to growth in 2027, with non-oil activity continuing to show greater cohesion compared to oil activity.
Energy shock and inflation
The organization believes that the renewed energy shock in September will keep global inflation high for a longer period, after the increase in oil and gas prices prompted it to raise its inflation expectations in 2026 and 2027. Energy supply disruptions from the Middle East are also one of the most prominent risks surrounding the global economic outlook.
In Saudi Arabia, inflation remains at relatively low levels despite this shock in a different economic context determined by local factors, in addition to the monetary policy’s link to the US dollar.
This indicates that the impact of rising energy costs on local prices may remain limited, compared to what the G20 economies are facing, according to the organization’s estimates.
