Iran conflict doubles European gas prices as Hormuz shipping halts

European natural gas prices have nearly doubled to €56 per megawatt-hour since the United States and Israel began strikes on Iran at the weekend, the sharpest immediate spike since the early months of Russia's full-scale invasion of Ukraine. The trigger is not a direct supply cut to Europe, the continent takes less than 10 percent of its gas via the Strait of Hormuz, but the removal of roughly a fifth of global oil and liquefied natural gas trade from the market at a moment when European storage is at a four-year low.

Hormuz closure stops a fifth of world oil trade

The Strait of Hormuz, the narrow waterway between Iran and the Arabian Peninsula, normally carries 15 million to 18 million barrels of crude a day. Since Saturday, that flow has dropped to "basically zero," according to Matthew Wright, principal freight analyst at Kpler. Fewer than ten vessels a day are attempting the passage; at least four ships have been hit. European shipping majors Maersk, Hapag-Lloyd, MSC and CMA CGM have suspended transits indefinitely, rerouting around the Cape of Good Hope.

Insurance has become the binding constraint. War-risk cover was briefly withdrawn entirely and has returned at premiums 200 to 300 percent higher. Without it, ships cannot sail. Wright, who has covered oil and shipping markets for 15 years, said the shock compares only to the Covid lockdowns and the first weeks of the Russia-Ukraine war, but carries a "uniquely dangerous geopolitical dimension" given the uncertainty over Iran's political future.

Qatar and UAE outages deepen the supply hole

The Hormuz closure is compounded by producer-side outages. Qatar's giant LNG complex, source of roughly 20 percent of global LNG supply, halted production on Monday. The UAE shut down a major gas complex in northern Iraq last week. Asian buyers, cut off from their primary Middle Eastern sources, are now competing for the same Atlantic-basin cargoes Europe relies on, tightening the market further.

Europe's pivot away from Russian pipeline gas after 2022 made the United States the dominant LNG supplier, providing around 60 percent of EU imports. That concentration looked manageable until Donald Trump's threats last year to seize Greenland prompted EU energy commissioner Dan Jørgensen to warn publicly in January that the new dependence carried its own strategic risk. The Commission has since talked up alternatives, Qatar, the UAE, Algeria, Azerbaijan, but two of those are now partially offline.

Storage at four-year lows before the heating season ends

The timing is particularly awkward. EU gas storage fell to around 30 percent of maximum capacity in March, the lowest for the time of year since 2022, according to data from ENTSOG, the association of transmission network operators. Colder winter weather drained reserves faster than expected, and several member states have struggled to meet the 90 percent filling targets the EU set after Russia's invasion. Germany has reportedly pushed to discontinue the targets altogether.

Oil stocks are governed by a separate 90-day emergency reserve obligation, but compliance is patchy beyond the EU. A 2025 report by the Energy Community, which covers the Western Balkans and other neighbouring countries, found oil stockpiles ranging from low to non-existent in Albania and Bosnia and Herzegovina. Strategic reserves on both the gas and oil side have not yet been released; officials in multiple capitals say they are still assessing how the conflict will evolve.

Industrial competitiveness and the climate policy backlash

Gas accounts for roughly 20 percent of Europe's total energy consumption, underpinning heating, electricity generation and energy-intensive industry. A sustained price at or above €56 per megawatt-hour will feed through to household bills and factory gate costs. Industry groups are already arguing that Europe's climate policies, particularly the Emissions Trading System, add an avoidable cost burden. If prices persist, political pressure to weaken the ETS or delay other Green Deal measures will intensify, replicating the dynamic seen during the 2022 energy crisis.

Oil prices have risen about 10 percent since the strikes began. The EU sources most of its crude from Norway and the United States, so physical supply is not immediately threatened, but the global price benchmark moves in tandem. Pump prices will follow, adding to household inflation at a moment when the European Central Bank is still calibrating its easing cycle.

Renewables argument collides with immediate reality

Climate advocates were quick to frame the crisis as proof that fossil fuel dependence is a strategic liability. Simon Stiell, executive secretary of the UN Framework Convention on Climate Change, said on Monday that the upheaval shows "yet again that fossil fuel dependence leaves economies, businesses, markets and people at the mercy of each new conflict or trade policy lurch." Renewables, he argued, are "cheaper, safer and faster-to-market, making them the obvious pathway to energy security and sovereignty."

Adrian Hiel, director of the Electrification Alliance, called for a "massive push" on electric vehicles, heat pumps, renewables and batteries. The numbers, however, underline the gap between ambition and today's reality. Renewables generate almost half of EU electricity but only around 20 percent of the bloc's total energy mix. Electrifying industry, transport and heating is a multi-decade project; it does not solve a supply shock next week.

Trump offers naval escorts as markets wait

On Tuesday, President Trump proposed US naval escorts and political risk insurance for tankers transiting Hormuz. The announcement trimmed a rally that had added more than $10 to a barrel of oil since Saturday, but traders remain nervous that Iranian retaliation could target Gulf oil and gas infrastructure directly. European capitals have not publicly endorsed the escort idea; the memory of the 2019 tanker seizures and the subsequent European-led maritime mission, EMASoH, which struggled for participation, makes some reluctant to align too closely with a US military operation in the Gulf.