Iran War’s Effect on European Energy Prices

TURKEY – Following the Iran war initiated by the US and Israel at the end of February, the global energy markets have been rattled, with European energy dependency on natural gas coming into attention.

While natural gas prices across Europe surged nearly 100% in the course of the month, the region’s reliance on Gulf countries, reaching as high as 40% in some European nations, became a topic of debate.

Policymakers discussed immediate strategies to mitigate the shortfall and stabilize surging energy costs that threaten the regional economy.

Several countries also reconsidered the decommissioning of their nuclear power plants to secure a reliable baseline energy alternative.

From Feb. 28 to March 26, in around 20 days, the price of gas in April futures contracts rose 89.4% from €31.5 ($36.2) per megawatt-hour to around €54.5 in the Netherlands, based on the virtual natural gas trading point TTF, which has the most depth in Europe.

Gas prices increased 81.8% in France, 78.9% in Spain, 77.4% in Belgium, 75.6% in the UK, 74.7% in the Netherlands, 74.1% in Germany, 71.2% in Czechia, 69.7% in Austria, 69% in Denmark, 48.6% in Lithuania, 43.6% in Finland and 41.55% in Latvia and Estonia, according to the European Energy Exchange’s Spot Prices index.

Andres Cala, an analyst from data provider Montel, said, unlike the rest of Europe, there is a higher risk of physical curtailments to oil and gas supplies in some Mediterranean and south and central European countries amid the Middle East turmoil that is eroding an already fragile security of supply in the region.

While Italy, France and Spain can, and are expected to, offset any gas tightness by buying significantly more expensive LNG on the spot market, it will be harder for Europe’s Eastern flank to secure necessary supplies amid heightened global LNG competition, including from other EU members, and restrictions to Russian supplies.

“Countries in central Europe already began restricting oil products to some consumers, and this is likely to broaden amid the ongoing shut-in of the Druzhba oil pipeline without any flexibility to allow more Russian supplies,” he said.

“There are no reported gas shortages, but also because the supply crunch from the Strait of Hormuz is only starting to be felt only now as the last cargoes that were able to exit the chokepoint arrive at destination.”

Considering the uncertainty of US versus Iranian statements, there is still a big risk that the war will continue for weeks at least, meaning the region will be exposed to unprecedented tightness, with very little real alternative in the short term, he added.

The EU would need to acknowledge that at this juncture the best choice is to rely on Turkey’s energy hub ambitions, or simply put, to open the back door to Europe, he underlined.

He said Turkey’s hub aspiration will take years to materialize, but Europe should act, as Ankara is now hard-pressed to deliver, not for Europe’s sake, but for its own economic and geopolitical ambitions.

“Europe, in turn, must decide whether it wants influence over what could yet become a structural shift in regional energy flows,” said Cala.

He stressed that Turkey already plays a quiet, if underappreciated, role in Europe’s energy balance; it absorbs volumes Europe rejects from Russia and Iran, transits Azerbaijani gas and reexports limited domestic production and global LNG.

For Europe, greater diversification through Turkey could offer leverage, particularly against expensive LNG, while enhancing Mediterranean supply security and widening a potentially profitable corridor, he said.

Cala highlighted that Europe’s longer-term security would be strengthened by recasting Turkey as its southeastern buffer against Russian and Middle Eastern instability, while simultaneously advancing its strategic options in the Mediterranean.

But a functioning hub requires four elements: supply, transmission capacity, storage and liquidity, he said, noting that Turkey is short on all four, at least until the end of the decade, and only if reforms stay on track, “Ankara is moving to close the gap, but supply remains the weakest link.”

Cala said Turkey consumed 60 billion cubic meters (bcm) in 2025 against a pipeline import capacity of almost 75bcm, and more than 50bcm in LNG regasification capacity.

Turkey’s resource base is not negligible either; its Black Sea discoveries, estimated at nearly 800bcm, could lift production from under 4bcm in 2025 to 15-20bcm by the decade’s end, he said. “And more discoveries are expected in Turkey’s Black Sea, as well as eastern Mediterranean, oil and gas.”

Meanwhile, the Akkuyu nuclear plant, with four reactors totaling 4.8 GW, is expected to start generating this year and ramp up to eventually supply around 10% of electricity demand, he said.

Cala said renewables capacity has already expanded nearly 50% since 2020 to roughly 75 GW, and is projected to approach 100 GW by 2030, freeing additional gas for export.

“Taken together, Turkey could offer Europe a meaningful spare gas supply by 2030, and in a functioning liquid market, provided domestic reforms stay on course. But it won’t happen this year or in the short term,” he added.