The European Central Bank raised interest rates for the first time in almost three years Thursday, as a jump in energy prices triggered by the Iran war drives inflation higher.

The ECB lifted the benchmark rate in the euro area by a quarter of a percentage point to 2.25%, becoming the first major central bank to increase borrowing costs since the war began on February 28.

“The war in the Middle East is generating inflation pressures,” the central bank said in a statement. “The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth,” it added.

Inflation across the 21 countries that use the euro stood at 3.2% last month, up from 3% in April, as energy prices rose. The ECB, like other major central banks, targets an inflation rate of around 2%.

Europe depends heavily on imported fossil fuels to power its economy and is spending billions of dollars more on energy imports because of the war. Soaring energy costs threaten to derail a tentative economic recovery in the region, which only recently emerged from the energy crunch precipitated by Russia’s 2022 invasion of Ukraine.

Headline inflation peaked at 10.6% in the euro area in October 2022. Interest rates, meanwhile, hit a record high of 4% in September 2023, following a protracted rate-hiking campaign to tame soaring prices.

The International Monetary Fund sees euro area growth at 1.1% this year, according to an April estimate, a 0.2 percentage point downgrade from its forecast in January. (CNN)