Estimated time of reading: ~ 5 minutes

The war in Gaza, the growing tensions in the Middle East, and more recently the conflict between Israel and Iran have seen the European Union take a very low profile on the international scene, unable to take the diplomatic initiative and forced to follow the line of the United States. Worried about the situation in Ukraine and focused on averting a possible future Russian attack, most European governments have not been able to conduct a coherent policy with respect to the increasingly serious situation that has arisen in the Middle East over the past two years, despite the impact that all this brings from an economic and political point of view. Energy is clearly one of the most relevant aspects in this context, since, after the deep cut in connections with Russia, the European Union is constantly looking for new sources of hydrocarbon supply. Gas and oil already come largely from Middle Eastern partners, but the war between Israel and Iran has threatened to jeopardize all this, opening up a potentially devastating energy crisis for European nations. With potential threats to key natural gas fields and vital oil shipping routes, the EU’s energy security is once again under pressure, despite the ceasefire reached between Israel and Iran. This geopolitical flare-up threatens to disrupt in particular liquefied natural gas (LNG) flows at a time when Europe is attempting to reduce dependence not only on Russian gas but also on other sources, making it highly exposed to shocks in global energy markets. 

One of the greatest concerns lies, of course, with the possible closure of the Strait of Hormuz—a narrow but critical maritime passage through which a third of the world’s seaborne oil and a fifth of LNG shipments pass every day, shipped towards ports in Europe and Asia. Global and regional instability still worries policymakers all around the EU, as the tensions between Israel and Iran could rise again and lead to other negative developments for the Middle East trade routes, spanning from the Persian Gulf to the Red Sea. Looking at this perspective, though analysts believe a full closure is unlikely due to Iran’s need to export oil and gas to key partners like China and India, we already saw major disruptions in the last few weeks, as several oil tankers have reportedly refused to pass through the Hormuz Strait, and shipping insurance premiums have spiked. Generally speaking, any disruption to shipments from Qatar, whether from delays or regional conflict, could cause immediate supply issues for European countries, and the natural gas prices in the continent have already reacted to the geopolitical tensions of the past weeks, with the Dutch TTF benchmark rising to nearly €42/MWh—its highest level in three months. Although gas demand in Europe is typically lower in the summer, a spell of hotter-than-usual weather has driven up cooling needs, increasing energy consumption. The Israel-Iran conflict has once again underscored the fragility of Europe’s energy security and its dependence on a volatile international market. As tensions persist in the Middle East, the EU governments must brace for more price shocks and develop (or pursue) long-term strategies to strengthen energy independence.

Written by: Francesco Marino