FT中文网: The Iran War Drags Europe into Energy Crisis Again

By FT中文网 Columnist

Following the energy crisis triggered by the Russia-Ukraine war, Europe is now facing another surge in energy prices due to the situation in Iran. Ordinary people are already feeling the impact: gas station prices have once again exceeded €2 per liter, mirroring the situation after the outbreak of the Russia-Ukraine war.

Over the past week, world oil prices have experienced dramatic fluctuations. On Monday, March 9th, the tenth day of the Iran war, Brent crude oil prices briefly approached $120 per barrel, nearing the peak reached shortly after the outbreak of the Russia-Ukraine war in 2022. Economists generally believe that for every $10 increase in oil prices, global economic growth will decrease by 0.1%. On Tuesday, influenced by factors such as US President Trump’s statement that “the war will end soon,” oil prices fell back to nearly $80 per barrel. Then, on March 11th, the International Energy Agency conducted its largest-ever emergency oil reserve release, but the effect quickly faded, and oil prices climbed again. On the afternoon of March 12, oil prices fell from Monday’s high to $101, but were still 44% higher than the day before the war; natural gas prices rose 60% during the same period. On the morning of March 13, Brent crude for May delivery remained above $100 per barrel.

Among the factors influencing the energy crisis, the timing of the restoration of security in the Strait of Hormuz is crucial, as it determines how high oil prices can go. The higher energy prices, the greater the pressure on Trump to continue the war. As for Iran, whose military strength lags far behind the United States and Israel, a blockade of the Strait of Hormuz would effectively strangle the global energy supply and even the global economy.

According to the International Energy Agency, approximately 25% of global seaborne oil trade passes through the Strait of Hormuz, and alternative routes around the strait are very limited. Therefore, any disruption to shipping through the strait would have a significant impact on the global oil market. At the same time, a blockade of the Strait of Hormuz would also hinder liquefied natural gas (LNG) exports from Qatar and the United Arab Emirates, which together account for nearly 20% of global LNG exports.

Although statistics show that by 2025, crude oil shipments through the Strait of Hormuz will account for 34% of global trade, with only 4% flowing to Europe; and Europe’s share of liquefied natural gas exported through the strait will be just over 10%, the impact of the Iranian situation on Europe is a chain reaction of high energy prices, a crisis that is difficult to resolve without further developments.

Nobel laureate economist Joseph Stiglitz recently stated in a media interview that the impact of Trump’s presidency on the global economy is like throwing a grenade.

This grenade has naturally hit Europe, which was already struggling with high energy prices. Before the Iran war, European industry was already burdened by excessively high energy prices. Oil is not only essential for transportation but also an indispensable raw material in the production of industrial products. Rising energy prices will also drive up the costs of other products, which is a further blow to European manufacturing, especially energy-intensive industries.

Among European countries, Germany will be particularly affected. This country, with its large energy-intensive industries, is facing a prolonged economic slump. According to the German Institute for Economic Research (IW), the oil price surge caused by the Iran-Iraq War could significantly drag down German economic growth. A simulation by the institute suggests that if oil prices rise to $150 per barrel, Germany’s GDP will decrease by 0.5% in 2026 and 1.3% in 2027. This translates to a cumulative loss of over €80 billion over two years. Even a smaller increase in oil prices will have a significant impact: if oil prices climb to $100 per barrel, Germany’s GDP will lose 0.3% in 2026 and 0.6% in 2027, resulting in a cumulative economic loss of approximately €40 billion over two years.

Higher energy prices will drive up costs for transportation, heating, production, and numerous intermediate goods, and these effects will be transmitted along the entire value chain, ultimately impacting consumer prices and further pushing up inflation: if oil prices rise to $150 per barrel, consumer prices will increase by approximately 1.6% in 2026 and approximately 1.9% in 2027; if oil prices reach $100 per barrel, consumer prices will increase by approximately 0.8% in 2026 and 1% in 2027. Rising consumer prices will further dampen already sluggish consumer sentiment.

On March 11, the European Commission called on member states to urgently alleviate the energy cost pressures on the public. In just 10 days since the price war began, natural gas and oil prices have surged by 50% and 27% respectively, resulting in Europe paying an additional €3 billion for fossil fuel imports. The European Commission emphasized the need for a comprehensive review of the four components of the energy bill, with energy itself accounting for over 56%, grid costs 18%, taxes and surcharges 15%, and average carbon costs around 11%. Currently, several European countries have taken the lead in implementing measures. Greece, Croatia, and Hungary have imposed price caps on gas stations; Germany, following Austria’s example, plans to limit gas station price increases to once a day, while imposing no restrictions on price reductions.

It is worth noting that Russia, as the world’s second-largest oil exporter and possessing the world’s largest natural gas reserves, has suddenly gained a dominant position in the global energy market and even in global power struggles following the outbreak of the Iran-Iraq war. The think tank GlobSec predicts that if crude oil prices remain around $100 per barrel until September, Russia could gain up to $14 billion in additional revenue. If the Iran-Iraq war continues longer, the West may further ease sanctions on Russian oil and gas.

On March 9, Trump and Putin held their first phone call of the year. Afterwards, Trump told reporters, “We are also suspending some oil-related sanctions to lower prices. We currently have sanctions on some countries. We will lift those sanctions until things are straightened out.”

Meanwhile, European countries agreed on March 11 to release international oil reserves, hoping to prevent Trump from easing sanctions on Russia. However, on March 12, the US government announced a temporary authorization to expand the global reach of existing supplies, allowing countries to purchase Russian oil currently stranded at sea. This temporary waiver of US sanctions will last until April 11.

Since the Russia-Ukraine war, the EU has been relentlessly pursuing energy de-reliance and de-Russification. With the escalation of the situation in Iran, looking back, its allies are regressing to square one.

Source: FT中文网 WeChat Official Account