The escalating conflict between the United States, Israel, and Iran has thrown a spotlight on a critical vulnerability in the global energy system: the Strait of Hormuz. This narrow waterway, a chokepoint for roughly 20 million barrels of oil and petroleum products per day – about a fifth of global consumption – is now at the center of concerns about potential supply disruptions. The situation is further complicated by the fact that all liquified natural gas (LNG) exports from Qatar and the United Arab Emirates, representing around 20% of global LNG trade, also pass through the strait. Shipping through the Strait of Hormuz has already slowed to a near standstill since the initial strikes on February 28th, according to reports.
The immediate impact has been felt in energy markets, with oil prices jumping approximately 8% and European gas prices rising by around 20% on the morning of March 2nd. While a brief conflict might only inject a “geopolitical risk premium” into prices, a prolonged disruption – lasting several weeks or longer – could significantly erode inventories and tighten global oil and gas balances, leading to substantially higher costs. Understanding how this unfolding crisis will impact European energy markets is crucial, particularly as the continent continues to navigate its energy transition.
Europe’s LNG Vulnerability
While Europe is less reliant on oil and LNG from the Gulf region than countries like China, India, Japan, and South Korea, It’s far from immune to disruptions in the Strait of Hormuz. Because oil and LNG are traded on global markets, any blockage would likely trigger price spikes affecting Europe regardless of its direct import volumes. The most significant vulnerability for Europe lies in its dependence on LNG. A curtailment of LNG flows through the strait would immediately tighten global spot availability, forcing European buyers to compete with Asian purchasers for flexible cargoes – a scenario reminiscent of the 2021-2023 energy crisis.
This competition is particularly concerning given Europe’s current gas storage levels. As of the end of February 2026, European gas storage stood at 46 billion cubic meters (bcm), significantly lower than the 60 bcm at the same point in 2025 and 77 bcm in 2024, according to data from Bruegel. Lower storage levels mean Europe has less buffer to absorb potential supply shocks and could face challenges refilling storage facilities in preparation for next winter.
Impact on Industrial Costs and the Energy Transition
Disrupted storage refill operations would place added pressure on industrial energy costs across Europe. Higher gas prices invariably translate to higher power prices and reduced margins for gas-intensive industries. A simultaneous spike in both oil and gas prices would limit the possibility of fuel substitution, potentially leading to a resurgence in coal demand and increased pressure for demand-side savings measures. This situation complicates Europe’s efforts to lower industrial energy costs, a key concern for EU leaders as they strive to enhance the continent’s competitiveness, as discussed at the European Council meeting on February 12th.
The OPEC+ decision on March 1st to raise oil output in an attempt to stabilize markets is a welcome development, but its effectiveness remains to be seen. The International Energy Agency (IEA) is also considering whether to authorize the collective release of oil stocks held by its member states – equivalent to 90 days of import cover – in the event of a severe supply disruption. However, the United States, with its substantial strategic petroleum reserve exceeding the IEA requirement, is currently not planning to release oil from its reserves, signaling a belief that any price surge will be contained.
Contingency Planning and Long-Term Solutions
European policymakers are now faced with the need to prepare contingency plans for a potentially prolonged standoff in the Middle East. On the gas front, the European Commission should coordinate with EU governments to implement security-of-supply measures in the event of significant price spikes or shortages. These measures could include closely monitoring LNG markets to assess potential diversions of cargoes to Asia and enacting options to ensure security of supply, preparing an EU-wide gas demand-reduction strategy, and coordinating gas storage refilling operations to maximize cost-effectiveness and security for the coming winter.
The current situation underscores a critical lesson: in a tighter, more globalized gas market, fragmentation is costly. The precautionary instruments established during the previous energy crisis – including EU-level coordination of gas storage refilling and joint efforts to strengthen security of supply – must be preserved, not dismantled.
Europe’s vulnerability to geopolitical shocks remains rooted in its continued reliance on imported fossil fuels. Accelerating the deployment of clean, domestically produced energy sources is the most durable solution. Reducing structural dependence on oil and LNG imports is essential to shield the European economy from recurrent external shocks and ensure long-term energy security. The conflict in the Middle East serves as a stark reminder of this imperative.
The next key development to watch will be the IEA’s decision regarding the potential release of coordinated oil stocks. Further escalation in the region, or a prolonged disruption to shipping through the Strait of Hormuz, will undoubtedly prompt further action from both the IEA and individual European governments.
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