Strait of Hormuz Closure Sends Shockwaves Through European Energy Markets

Dutch TTF natural gas futures – Europe’s benchmark price – surged to over €50 per megawatt-hour on Thursday morning, marking a 60% increase since disruptions began in the Strait of Hormuz following strikes and escalating tensions in the region. This represents the continent’s most significant energy shock since the 2022 energy crisis, impacting a market already facing historically low gas inventory levels.

The Strategic Importance of the Strait of Hormuz

The Strait of Hormuz, a critical chokepoint for global energy trade, handles approximately 20% of the world’s oil supply and roughly one-fifth of global Liquefied Natural Gas (LNG) trade. Disruptions to this vital waterway pose a substantial threat to global energy security.

Europe’s Growing Reliance on LNG

For Europe, the stakes are particularly high. Qatar currently supplies approximately 15% of the continent’s total LNG imports, making uninterrupted passage through the Strait of Hormuz essential for energy security. Europe’s dependence on Gulf energy flows has increased significantly since reducing imports of Russian fossil fuels following 2022.

Potential Economic Impacts

Economists and energy analysts warn that even a brief disruption could inflict damage on European growth, push inflation back above target, and potentially force the European Central Bank (ECB) to reconsider its recent stabilization of interest rate paths. Oxford Economics estimates oil supply could be disrupted by around 4 million barrels per day in the coming quarter, despite Gulf producers having spare capacity. However, alternative shipping routes can only accommodate about one-third of the oil normally transiting Hormuz.

Low Gas Storage Levels Exacerbate Concerns

Europe entered March with unusually low gas storage levels, standing at roughly 30% across the continent, with Germany – Europe’s largest economy – reporting reserves as low as 21.6%. Disruptions to Qatari LNG exports could intensify competition from Asian buyers for cargoes, potentially hindering Europe’s ability to replenish gas storage ahead of next winter.

Inflation and Growth Risks

Higher energy prices are expected to contribute to inflationary pressures across Europe. Oxford Economics forecasts that the conflict could raise eurozone headline inflation by 0.3–0.5 percentage points in 2026, reaching around 2.3%. Higher energy costs could also reduce household purchasing power and trim economic growth. Oxford Economics estimates a potential reduction of approximately 0.1 percentage points in eurozone GDP growth this year.

Goldman Sachs has already revised its forecasts for economic growth, inflation, and central bank policy in light of the evolving conflict. They estimate that higher energy prices could reduce economic growth by 0.1 to 0.2 percentage points this year across the eurozone, the United Kingdom, Sweden, and Switzerland. In a severe scenario, with oil reaching $100 per barrel and gas €100 per megawatt-hour, headline inflation could be nearly two percentage points higher by late 2026, potentially prompting the ECB to implement two 25 basis point rate hikes in the second half of 2026.

Logistics and Aviation Disruptions

The conflict is also disrupting global logistics networks. Military strikes and retaliatory attacks have led several shipping companies to suspend bookings to Persian Gulf ports. Approximately 2% to 3% of global container volumes transit the Strait of Hormuz, with around 100 container vessels currently stranded in the Persian Gulf. Major carriers like Hapag-Lloyd, MSC, and CMA CGM have halted or limited shipments to the region. Disruptions to major Gulf aviation hubs, including Qatar Airways Cargo, Emirates SkyCargo, and Etihad, which collectively handle roughly 13% of global air freight capacity, are further exacerbating logistical challenges.

Currency Market Reactions

Financial markets are reflecting increased risk aversion. European currencies have weakened against the US dollar and gold. The euro has fallen approximately 1.8% against the dollar since the conflict intensified, with even more pronounced declines in Central and Eastern Europe, including the Hungarian forint (nearly 5%) and the Polish zloty (around 3.5%). Further currency weakness could amplify inflationary pressures by increasing import costs.

A Fragile Energy Balance

The unfolding conflict underscores the vulnerability of Europe’s post-Russia energy model. Although the continent has reduced its reliance on Russian pipeline gas, much of that supply has been replaced by seaborne LNG, increasing exposure to disruptions along global shipping routes and geopolitical tensions in key transit regions like the Middle East. With gas inventories already low and seasonal refilling underway, any prolonged disruption to energy flows from the Gulf could have significant repercussions for European markets and economies.