How will the conflict affect European energy markets? - Policymakers should plan for a long standoff in the Middle East
The attacks against Iran by the United States and Israel have reopened the most important energy security issue in the global economy, the disruption of Middle Eastern oil and gas flows that pass through the world's most important energy transport point, the Strait of Hormuz.
At risk are about 20 million barrels per day of oil and petroleum products, roughly a fifth of global consumption, plus all liquefied natural gas (LNG) exports from Qatar and the United Arab Emirates, equivalent to about 20% of global LNG trade.
A short conflict would inject a geopolitical risk premium into oil and gas markets. A prolonged disruption – perhaps several weeks – would begin to erode inventories, constrain logistics and tighten global oil and gas balances, with much larger effects on prices.
Europe is much less dependent on Gulf oil and LNG than China, India, Japan or South Korea, but it is not isolated. Oil and LNG are global markets: any blockage of the Strait of Hormuz could cause immediate price increases that would hit Europe despite its limited physical imports.
Europe's most pronounced weakness is LNG. If LNG flows through the Strait of Hormuz are restricted, global gas availability on the market is immediately reduced. Europe would then be forced to compete with Asian buyers for flexible cargoes on the market - something that was seen during the 2021-2023 energy crisis.
This would increase gas prices in Europe, especially because Europe started 2026 with much lower gas storage levels than in recent years: 46 billion cubic meters (bcm) at the end of February 2026, compared to 60 bcm in 2025 and 77 bcm in 2024.
Storage replenishment operations could be disrupted, putting pressure on industrial energy costs in Europe. Higher gas prices impact energy prices and industrial margins, particularly for gas-intensive sectors.
If oil and gas prices rise in parallel, substitution will be more difficult, potentially triggering new demand for coal and pressure for demand-side savings. Achieving Europe’s goal of reducing industrial energy costs – an issue at the heart of EU leaders’ concerns about competitiveness – could become more complicated.
If they have not already done so, European policymakers should prepare contingency plans in the event of a prolonged stalemate in the Middle East.
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