Hormuz Crisis Shows Europe More Exposed to Gas Price Shocks than Before Ukraine War, Study Finds

Why It Matters

Higher gas prices threaten European inflation and energy security, forcing policymakers to rethink supply strategies and accelerate the shift toward renewables.

Key Takeaways

• Diversification reduced Russian gas but raised LNG dependence.
• Hormuz closure could lift LNG prices above $28 per MMBtu.
• Prices stay high even if Strait reopens, per study.
• U.S. export limits would intensify European gas price shock.
• Energy‑security risk may spur faster renewable investment.

Pulse Analysis

Europe’s post‑Ukraine energy strategy has been a double‑edged sword. By cutting Russian pipeline imports, the EU successfully reduced geopolitical risk, but the pivot to liquefied natural gas (LNG) has created a new dependency on distant, market‑driven supplies. The Strait of Hormuz, a chokepoint for 20‑30% of global LNG shipments, now sits at the center of that vulnerability. Analysts estimate that a prolonged closure could push European LNG prices above $28 per MMBtu—roughly twice the average price seen in 2023—pressuring both households and energy‑intensive industries.

The study’s three scenarios illustrate how price dynamics could evolve. Even a swift reopening would leave prices elevated, reflecting lingering market tightness and higher freight costs. A six‑month shutdown amplifies the shock, while the addition of U.S. export restrictions would compound scarcity, driving prices even higher. Such spikes feed directly into inflation metrics, erode consumer purchasing power, and strain corporate margins, especially in sectors like chemicals, steel and aviation that rely heavily on natural gas as a feedstock or fuel.

Policymakers now face a strategic crossroads. Short‑term measures may include expanding strategic gas reserves, negotiating bilateral LNG contracts, or temporarily easing carbon pricing to cushion industry costs. Longer‑term, the findings underscore the urgency of accelerating renewable capacity, investing in hydrogen and storage technologies, and diversifying supply chains beyond geopolitically volatile routes. The EU’s upcoming energy‑security framework will likely incorporate these insights, balancing immediate price stability with the broader goal of decarbonisation.