European Gas Prices Hit Record High Amid Strait of Hormuz Crisis

European gas prices have surged to their highest level since early 2023, hitting €79 per megawatt-hour on Wednesday morning. The increase is largely due to concerns about LNG shipments through the Strait of Hormuz, which has been affected by the intensified fighting between the US and Iran.

The Strait carries about 20% of global LNG trade, and its effective closure for several months has blocked those shipments. As a result, European gas prices have added a growing risk premium, making it less attractive for traders to put gas into storage.

European storage levels are unusually low, but this doesn't mean the continent is about to run out of gas. EU gas consumption remains around 15% to 20% below its 2021 level, allowing the bloc to operate with lower storage levels.

The IEA has called for governments to rethink how they prepare for shortages, suggesting that strategic reserves could provide complementary support in a crisis. The agency recommends using flexible buying rules and international cooperation instead of relying solely on rigid storage targets and competition for LNG cargoes.