The longer the Middle East conflict continues, the worse the impact will becomeWhere we go from here will depend on the size and duration of energy price shockMonetary policy cannot stop higher energy prices from affecting UK economy, inflationSecond-round effects build more slowly than direct and indirect effectsThat makes it a difficult judgement call in navigating monetary policyPolicy setting cannot wait for conclusive evidence of second-round effects before respondingGiven the sheer unpredictability, there's a good case for holding rates nowBut must recognise that a long spike in energy prices could lead to a higher bank rateThe headline comment is one that everyone knows but one that is hardly said. If anything, Bailey being explicit about that signals that the central bank very much wants to favour optionality for as long as they can. That so as to gather more certainty on how the Middle East conflict will play out.However, they can only keep doing that for so long as they can't lag behind the curve in reacting to potential second-round effects on inflation. And the risk of that grows larger each and every day as the war continues to drag on and the Strait of Hormuz remains closed.What is interesting though is the scenario analysis on oil and gas prices that they are putting forward in estimating how to go about things.They note that Scenario A is one that reflects too much optimism and the current take by the BOE is that we should see energy prices return to "normal" based on something in between Scenario B and C. If so, does that mean that the BOE will have to angle towards raising the bank rate to something between 4.50% to 5.00%?It will be interesting to see but at least for now, they definitely are still hinting at a more hawkish path down the road. However, they are not going to commit to that just yet considering the uncertainty from the Middle East.But again, they can only stay on the sidelines for so long before feeling compelled to do something. It is the same for all major central banks at the moment. This article was written by Justin Low at investinglive.com.