Recent Middle East geopolitical tensions, particularly the Iran conflict, have driven sharp energy price increases that elevated euro-area headline and core inflation readings above the ECB’s 2% target. This has prompted the Governing Council to hold the deposit facility rate at 2.00% while signaling data-dependent readiness for tightening, with market pricing and economist surveys now assigning high probability to at least one 25-basis-point hike in 2026, most likely by mid-year. Resilient labor markets and second-round effects from higher energy costs reinforce trader consensus on the outcome. A swift conflict de-escalation that sharply reduces energy costs, or unexpectedly soft inflation and growth data, remain the primary factors that could still support an unchanged policy path through year-end.