How will the Iran conflict hit European energy markets?

Strikes against Iran by the United States and Israel have reopened the most consequential energy-security issue in the global economy: disruption of Middle Eastern oil and gas flows that transit through the world’s most important energy chokepoint, the Strait of Hormuz. At stake is about 20 million barrels per day of oil and petroleum products – roughly a fifth of global consumption – plus all liquified natural gas (LNG) exports from Qatar and the United Arab Emirates, equivalent to around 20% of global LNG trade. Since the first strikes on 28 February, shipping through the strait has slowed to a near standstill.

The immediate impact on energy prices has been significant. Oil prices spiked about 8% percent and the European gas price about 20% on the morning of 2 March. The longer-term impact on energy prices will depend on how long hostilities last and their impact on shipping through the Strait of Hormuz. A brief conflict would inject a geopolitical risk premium into oil and gas markets. A prolonged disruption – perhaps over several weeks – would begin to erode inventories, constrain logistics and tighten global oil and gas balances, with much greater effects on prices.

Europe is far less dependent on Gulf oil and LNG than China, India, Japan or South Korea, but it is not insulated. Oil and LNG are global markets: any blockage of the Strait of Hormuz could trigger immediate price spikes that would hit Europe regardless of its limited physical imports.

Europe’s most pronounced vulnerability is LNG. If LNG flows via the Strait of Hormuz are curtailed, global spot availability tightens immediately. Europe would then be forced to compete with Asian buyers for flexible cargoes on the spot market – something seen during the 2021-2023 energy crisis. This would push up European gas prices, especially because Europe started 2026 with much lower gas storage levels than recent years: 46 billion cubic metres (bcm) at the end of February 2026, compared to 60 bcm in 2025 and 77 bcm in 2024.

Storage refill operations could be disrupted, placing pressure on industrial energy costs in Europe. Higher gas prices feed into power prices and industrial margins, especially for gas-intensive sectors. If oil and gas prices spike in tandem, substitution will be harder, potentially triggering renewed coal demand and pressure for demand-side savings. Achieving Europe’s goal of lowering industrial energy costs – an issue at the core of EU leaders’ competitiveness concerns – could become more complicated.

When it comes to oil, the 1 March Opec+ decision to raise output in a bid to calm markets is certainly important. The International Energy Agency will decide on whether to allow its member states to collectively use the 90 days of import-equivalent oil stocks they are required to hold in case of severe oil-supply disruption. For now, the US is not considering releasing oil from its large strategic petroleum reserve (the US stock exceeds the IEA requirement), signalling that Washington believes any price surge will be limited.

If they haven’t already, European policymakers should prepare contingency plans in case of a prolonged standoff in the Middle East. On gas, the European Commission should coordinate with EU governments on security-of-supply measures to be rolled-out in the event of huge price spike or shortages. These could include: i) monitoring of LNG markets to understand the scale of any possible diversion of cargos to Asia, and enacting all possible options to ensure security of supply; ii) preparation of an EU gas demand-reduction strategy; iii) more coordinated gas storage refilling operations in the coming months, to ensure cost-effectiveness and security of supply for next winter (for which refilling starts in spring).

For Europe, the renewed US/Israeli conflict with Iran is a reminder that in a structurally tighter and more globalised gas market, fragmentation is costly. The precautionary instruments put in place during the energy crisis, including EU-level coordination of gas storage refilling and joint efforts to strengthen security of supply, should be preserved – not dismantled.

The situation also reinforces a more fundamental point: Europe’s exposure to geopolitical shocks remains rooted in its continued reliance on imported fossil fuels traded on volatile global markets – even if it has shifted dependency from Russia to other suppliers, not least the US. Rather than slowing down the low-carbon transition, the new tensions show that the deployment of clean, domestically produced energy sources should be accelerated. Only by reducing structural dependence on oil and LNG imports can Europe durably shield its economy from recurrent external shocks.