Europe Faces Hard Choices as Iran War Drives Energy Prices Sky High

The Iran war is causing a significant energy shock in Europe, leading to increased gas prices and a shortage of liquefied natural gas (LNG) due to the blockade of the Strait of Hormuz. European benchmark gas prices have jumped over 60% since the conflict began, reaching above 50 euros per megawatt hour.

The European Union is heavily dependent on imported oil and gas, with around 8% of its LNG coming from the Middle East through the Strait of Hormuz. The EU has also expanded renewable energy deployment in recent years, but gas still accounts for about a fifth of the bloc's total energy consumption.

European policymakers are aware that some environmental measures have pushed up energy costs and undermined industrial competitiveness. Germany's economy and energy minister, Katherina Reiche, said the EU overestimated sustainability and underestimated affordability, and that it is necessary to correct this mistake.