Despite a significant drop in oil prices following the confirmation of a two-week ceasefire between the United States and Iran, Europe may not breathe a sigh of relief just yet due to the ongoing impacts on energy supplies it heavily depends on.
The Iranian war and the effective closure of the Strait of Hormuz have led to the largest disruption in oil supplies in the history of the global market, according to the International Energy Agency. The strikes on facilities in the Gulf are expected to affect gas supplies for several years to come.
Details of the Event
Europe is significantly affected, even though it imports only a small percentage of its oil and gas directly through the Strait of Hormuz, which was under the effective control of Iranian forces until the ceasefire. The opening of the strait was a non-negotiable part of the ceasefire agreement, as it is a vital point for shipments of oil and liquefied natural gas.
In 2025, approximately 15 million barrels of crude oil passed through the strait daily, according to the International Energy Agency, of which about 600,000 barrels per day, or only 4%, were directed to Europe, compared to the European Union's daily needs of 13 million barrels.
Background & Context
European Union countries import about 80-85% of their oil, according to Eurostat, from a variety of suppliers, with the United States being the largest, accounting for 15.1% of the value, followed by Norway and Kazakhstan.
Oil prices for loading next month rose from $72-73 per barrel before the war to around $120 at its peak, before the ceasefire agreement was reached. Even after the ceasefire, prices were around $93 on Wednesday.
Impact & Consequences
Gas prices in Europe have also seen an increase since February 28, when the war began. Futures rose to €50 per megawatt-hour from about €35.5 before the war, peaking at €61.93 per megawatt-hour on March 19. Prices stabilized around €44 per megawatt-hour on Wednesday after the ceasefire.
In many European countries, electricity prices are determined by the most expensive source, which is often gas. Ethan Tilley, a gas specialist at ICIS, noted that rising gas prices are impacting energy bills in Britain and Europe through direct gas costs and increased costs of electricity generation from gas-fired power plants.
Regional Significance
The Arab region is directly affected by these developments, as many countries rely on oil and gas exports. If high prices persist, they may impact the economies of these countries, especially those that heavily depend on energy revenues.
In conclusion, the situation in Europe remains complex, as any peace agreement may not necessarily lead to an immediate drop in prices, leaving markets under continuous pressure.