How the Iran War Could Trigger a European Energy Crisis

• With the conflict in the Gulf well into its third week, a difficult reality is setting in across Europe: Even if a cease-fire were agreed today, the continent is likely already heading toward an energy crisis.
• The ongoing US-Israeli strikes on Iran, along with Tehran’s retaliation across the Gulf, have produced one of the most severe disruptions to global energy markets in decades. At the centre of the crisis is the Strait of Hormuz, the most critical chokepoint in the global energy trade. Before the current conflict, roughly 20% of the world’s oil supply transited the strait each day. While the effective closure of the strait has sent shockwaves through global oil markets, Europe’s immediate vulnerability lies elsewhere: liquefied natural gas (LNG). Approximately 20% of global LNG trade passed through the strait before the current conflict, much of it originating in Qatar, the world’s second-largest LNG exporter. There is no viable alternative export route for this LNG.
• For Europe, the timing could scarcely be worse. Europe is entering a critical period when underground gas storage must be replenished ahead of winter. Yet European countries are beginning this process in one of the weakest positions in years. Refilling these reserves now depends heavily on LNG imports, following Europe’s rapid shift away from Russian pipeline gas following Russia’s full-scale invasion of Ukraine in early 2022.
• According to the Aggregated Gas Storage Inventory database, European storage levels are currently below 30%, a five-year low. A colder-than-average winter, combined with increased gas burn in the power sector, pushed European gas demand up nearly 7% since the start of the year. At the same time, pipeline year-over-year exports from the European Union (EU) to Ukraine surged more than tenfold, further accelerating withdrawals.
• Further squeezing the LNG market is the March 2 Iranian drone strike on QatarEnergy’s Ras Laffan facilities, which forced an immediate shutdown of production. Two days later, the company declared force majeure, meaning QatarEnergies is temporarily suspended from its contractual commitments to deliver LNG to customers.
• While Europe successfully outbid Asia for LNG in 2022, the 2026 landscape has shifted. Major East Asian economies (China, Japan, South Korea, and Taiwan) are now aggressively competing for limited global supply, particularly following the loss of Qatari volumes, leaving Europe vulnerable to being outbid on cost.
• Despite efforts to move away from Russian energy, Europe has largely traded one dependency for another by relying heavily on US LNG. With US facilities operating at near capacity and domestic European production (like German nuclear) significantly reduced, the continent lacks a short-term "release valve" for price shocks.
• The crisis is fracturing European unity. While leaders like Chancellor Friedrich Merz and President Macron remain firm on Russian sanctions, others, such as Belgium’s Bart De Wever, are calling for a normalisation of energy relations with Moscow. This internal pressure grows as the EU approaches a 2027 deadline to fully phase out Russian gas.

(Source: Atlantic Council of the United States)