Societe Generale economists expect the European Central Bank (ECB) to leave policy unchanged this week, while using a hawkish tone as it assesses the recent rise in oil prices. They see the current oil shock as smaller than past episodes, but with a risk it could persist if Iran restricts flows through the Strait of Hormuz. At current levels, oil prices are stated to be below historical highs, and even lower once inflation is considered. European economies are described as having reached peak oil use in the 1990s, with consumption now a third lower than it was.

Oil Shock Scale And Structural Cushion

The note says oil prices would need to double to reach the scale of earlier oil shocks. It also points to a declining share of fossil fuels in electricity generation as a factor that may reduce the economic impact. The ECB meeting on Thursday is expected to focus on whether the energy price jump is temporary or lasting, and how it may affect the economy. It is described as too early to conclude whether weaker growth would limit second-round inflation effects, or whether resilience would lead to a tighter stance. The European Central Bank will likely keep policy unchanged this week but maintain a hawkish tone while it assesses the recent oil price surge. With Brent crude having climbed to around $110 per barrel, the key question is whether this energy shock will prove temporary. This uncertainty from the central bank creates an environment where derivative traders should be focused on volatility. We see this directly in the market, with implied volatility on Euro Stoxx 50 options, as measured by the VSTOXX index, rising above 20. Traders should consider using options to position for a significant market move, as the ECB’s ultimate decision could swing sentiment sharply in either direction. This is a classic setup for strategies that profit from a breakout rather than a specific directional bet.

What Traders Watch Next

Looking back from our perspective in 2025, we all remember how the 2022 energy crisis forced the ECB into a rapid rate-hiking cycle that caught many off guard. That historical precedent is precisely why the central bank will be so cautious about underestimating second-round inflation effects this time. This memory is keeping markets on edge for any signs of a repeat policy response. However, the economic shock may be more muted today, as European oil consumption is substantially lower than it was during past crises. With renewables now accounting for over 45% of electricity generation in the bloc, the economy has a much larger cushion. At current levels, oil prices would likely need to double again to truly match the economic impact of previous shocks. Given this tension, traders should be watching derivatives tied to short-term interest rates, such as Euribor futures, for signs of a policy shift. Options on the EUR/USD pair will also be highly sensitive to any change in tone from the ECB relative to the US Federal Reserve. The main play is to position for the resolution of this uncertainty over the next several weeks. Create your live VT Markets account and start trading now.

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