The global energy crisis: enjoy the summer while you can

“Enjoy the war. The peace will be terrible” was a morbid joke that Germans liked to tell each other in the closing stages of World War II.  In a similar vein, the ceasefire in the Iran war which has now gone on for nearly a month (and which US President Trump has extended indefinitely) looks worse for the global economy than the five week-long US and Israeli military campaign against Iran (Operation Epic Fury) itself. We are all now living with “Economic Fury”.  This is because the Strait of Hormuz remains closed to commercial shipping on account of the double blockade imposed by Iran and the US, both engaged in a game of chicken as to who can face the other down the longest.

Trump recently told a group of US oil and gas executives that he was willing to keep the blockade of the Strait up indefinitely to strangle the Iranian economy. The US Navy has 20 ships in the Gulf for this purpose, although its largest aircraft carrier, the Gerald R Ford, has recently had to depart the Gulf due to urgent maintenance issues. CENTCOM claims to have turned back 43 vessels so far, allegedly carrying Iranian oil or products, and to be blocking 65 million barrels of Iranian crude from being exported. Moreover, it has given itself the mandate to stop or seize Iranian vessels on the high seas as well.

The US Treasury Department has stepped up the pressure by introducing further sanctions on Iran’s use of cryptocurrency, Iranian trading houses and foreign currency markets as well as secondary sanctions on Chinese banks and energy companies trading with Iran. The Iranian rial has fallen to 42,000 against the US dollar.

Yet Iran shows no sign of caving in just yet.

It has continued to mine the Strait of Hormuz, attack a number of tankers to ensure that the 2000 commercial ships currently stranded in the Gulf don’t take the risk of running the gauntlet through the Strait, and refused to engage with the US in talks on its nuclear activities until the US lifts its blockade of Iranian ports. As Trump refuses to negotiate on Iran’s terms (just like Tehran rejects those of the US as “maximalist”), there has been no follow-up to the single meeting between the US and Iranian negotiating teams in Islamabad in early April (although Pakistan has continued to work behind the scenes on a Memorandum of Understanding for peace talks that can bring the two sides closer together). The war has ended, at least for now (although Trump has asked his military commanders for options should he wish to restart it), but peace in the form of a return to normality is nowhere in sight.

When the US unleashed its war on Iran, Brent Crude was trading at $70 a barrel. Last week it hit $126, and the oil price has been higher since the ceasefire than before it. Between 11 and 14 million barrels a day have been taken off the world energy market – a fifth of the global oil total. The head of the Paris-based International Energy Agency, Fatih Birol, says that this is the worst energy crisis ever, even worse than the great oil shock of the mid-1970s, when the Arab-dominated oil producers cartel, OPEC, quadrupled the oil price and set quotas among its members to control production and keep the oil price high.

But OPEC is not quite the monopoly force that it was then. Qatar left the cartel in 2019 and Angola in 2023. Kazakhstan and Iraq have consistently been accused of violating the quotas and been on the verge of eviction. In the decades since the 1970s, other non-OPEC producers have discovered significant reserves and, as in the case of the US, even challenged Saudi Arabia and Qatar as the world’s largest oil and gas producers respectively. But OPEC still controls 40% of global oil production and it has formed an OPEC+ with Russia, which has allowed it recently to cut production once signs of an oil glut on international markets began to emerge. Russia, like the OPEC members, needs a high oil price to balance its budget (in Russia’s case fighting the war in Ukraine), but not so high as to depress oil consumption permanently and accelerate the transition to renewables and green energy. With oil now in short supply, seven OPEC+ members agreed this past week to a modest increase in output of 188,000 barrels a day. This comes on top of a previous increase of 202,000 barrels a day in March. The problem here is that more OPEC oil production will not do much to ease the energy crisis. The biggest OPEC oil producers with the largest spare capacity to get oil flowing again quickly are all in the Gulf and blocked behind the Hormuz blockades. Thus, since the Iran war started at the end of February, OPEC producers have not been able to meet their quotas. They pumped just under 28 million barrels a day whereas the overall quota was set at 37 million barrels, a shortfall of 9 million barrels.

OPEC has suffered a body blow with the withdrawal of the UAE, its second-largest producer. The UAE has long chafed at OPEC quotas and has invested in infrastructure to increase its oil production from 3.5 million to 5 million barrels a day. But its departure is part of a broader geopolitical rift with its neighbour, Saudi Arabia, whose dominance it has long resented and following disagreements with Riyadh over Yemen, Sudan and relations with Israel and the US.

In the longer-term, a weaker OPEC means more price competition and higher availability in the oil market. But in the short-term, the bad news for the European consumer is that Iran is hanging tough, loading oil onto tankers, filling its storage tanks and shipping as much oil as it can by road and rail east towards India and China. So, the US doesn’t hold “all the cards”, as Trump likes to proclaim. Meanwhile, the Gulf oil producers cannot get additional supplies to market. So as the last tankers that managed to get through the Hormuz Strait reach their offloading points in Europe, the final piece of slack is going out of the system. The supply crunch that the continent has avoided thus far better than Asia due to its larger reserves, will start to tighten. June is seen by economists and energy experts as the moment of truth when European governments will need to take some tough and unpopular decisions to conserve fuel supplies.

Other factors point in the same direction. The alternative supply route to and from the Gulf is the Bab al-Mandab Strait, leading up to the Suez Canal through the Gulf of Aden. Since the EU and NATO sent maritime forces to protect ships from pirates operating out of Somalia in 2008,  and the EU deployed its Aspides mission in February 2024 to protect ships transiting the Gulf of Aden from rocket attacks and illegal seizures carried out by the Houthis in Yemen, this route has been open to commercial navigation. But there are now worrying signs of more disruption. The Aspides mission has reported three attacks on tankers over the past few weeks, and two tankers have been hijacked – one by pirates operating from Puntland and the other by a group operating from Yemen. If a resumption of piracy from Somalia combines with more anti-ship strikes by the Houthis, the option of trying to re-route tanker traffic through the Gulf of Aden will be closed off, as insurance premiums soar and commercial shipping companies avoid the area.

The US has now offered some hope in extremis that the Strait of Hormuz can be reopened by proposing to launch “Project Freedom”. It will use its ships and 100 aircraft in the region together with 15,000 troops to help stranded ships out of the Strait upon their request.  But it will not escort those ships back into the Gulf at a later stage. It is a one-way operation and it is not yet clear if the US Navy will actually accompany the commercial vessels or simply give them guidance (for instance avoiding mines). We still do not know how many ships will accept the US offer to transit the Strait, particularly as Iran has declared that Project Freedom would be a violation of the ceasefire and that it would retaliate against the ships being escorted (or others). On Day One of Project Freedom Iran attacked a South Korean tanker, the Fujairah oil terminal in the UAE and a port in Oman with cruise missiles. The oil price rose by 5% within hours. So, the US move is no panacea or substitute for a diplomatic agreement to lift the blockades and restore freedom of navigation. Oil and gas prices will remain high. Yet just 48 hours after announcing the launch of Project Freedom, and sending his Secretary of State and Secretary of Defense in front of the press to boost the merits of this new operation, Trump performed a U-turn and announced that Project Freedom was being suspended. With no idea when and under which circumstances it might be restarted.

Despite 20 packages of EU sanctions against Russia, there may still be some European politicians who secretly (or even publicly) hope that the energy crunch may be the opportunity to restore some of the old ties between Moscow and its erstwhile European customers. The US Treasury Department has given Moscow a temporary respite on its energy exports and there have been no new boardings of Russian shadow fleet tankers by the US Navy. But Ukraine is doing its best to stop Russia from taking advantage of the greater demand for its oil on international markets, especially in Asia. Kyiv is now able to use its long-range drones and missiles to strike oil and gas loading facilities and storage tanks freely across Russia. In recent weeks, it has struck the oil refineries in the port of Tuapse on the Black Sea three times and the ports of Ust Luga and Primorsk on the Baltic. It has set two Russian oil tankers on fire. Ukrainian drones hit storage tanks in the Urals 2,500 km from the Ukrainian border. Kyiv has said that these strikes have significantly reduced Russia’s oil exports. International experts disagree, pointing to still significant Russian oil deliveries to traditional clients in Türkiye, India and China. But if Ukraine is able to keep this level of effort up, it is bound to have a major impact on Russian refining and export capacity in the long run. In any case, Moscow seems in no mood to cooperate with the Europeans, particularly those in the front line of supporting Ukraine. From the beginning of May, it has halted deliveries of Kazakh oil to the German PCK Schwedt refinery in Brandenburg through the Russian Druzhba pipeline. This refinery used 43,000 barrels of oil a day in 2025 and its products supplied markets in northeastern Germany as well as Poland. Germany and Poland are now racing to route alternative sources of supply through Gdansk.

Once the Strait of Hormuz finally re-opens, there may be a surge of relief and a temporary drop in oil prices as 800 fully loaded tankers (out of the 2000 ships stranded) head to markets in Asia, Africa and Europe. But economists believe that it will take months for the supply situation to return to normal. The Chief Secretary to the UK Cabinet estimates that it will take at least eight months in the case of the UK economy, particularly as the UK is heavily dependent on foreign energy supplies. Higher oil prices could add 5% to UK borrowing costs. Diesel is already 70% higher than before the Iran war and the price of jet fuel has doubled. Food prices are estimated to rise 9% by the end of the year as fertiliser, chemical and gas shortages caused by the closure of Hormuz impact domestic agriculture and food imports. The energy crisis could cut 1% from average GDP growth and add 1-2% to inflation according to the OECD.

The problem is that shipping companies will have changed their contracts to service other routes and products and be far away from the Gulf. Oil and gas production wells that have shut down because of the difficulties in storing and exporting output will take months to recommission and start up again. And damaged infrastructure will take billions in investment and years to repair. In the case of Qatar, 5 years for one LNG plant in Ras Laffan Industrial City. Meanwhile, the UAE state energy company, Adnoc, has announced that rather than rebuild some of its production facilities at home, it will invest in US natural gas products, which are poised to take an even larger share of the global energy market as US rivals succumb to war, major reconstruction costs and the absence of secure transport links.

Venezuela, a country with some of the largest reserves of oil in the world, could help to make up the shortfall. In April, it exported 1.23 million barrels a day, a 14% increase and its highest level since 2018. But much of this was from stocks and the Venezuelan oil industry is still well short of full capacity following years of under-investment and sanctions. It is now open to international investment following the US abduction of Nicolás Maduro, and oil majors such as Chevron, ENI and Repsol have formed joint ventures with state oil company, PDVSA. Yet it will take a few years before these joint ventures translate into modernised production facilities and greatly increased output. Much of the Venezuelan oil production will go in any case to the US given its current control of the country’s oil industry.

Given this context, and with no relief on the horizon, unsurprisingly, European politicians are beginning to warn their electorates of worse pain to come.

The Swedish Energy Minister has evoked a coming shortage of jet fuel ahead of the summer holiday season. Others are making preparations for the crunch and taking whatever mitigating measures they can come up with. Germany has cut fuel tax by 0.17 cents in the euro and warned energy companies to pass this benefit onto German motorists. Windfall taxes on the higher profits of energy companies are a tempting way to offset higher fuel prices at the pump. Greece has delayed the closure of a lignite plant. Belgium has accelerated the approval of a controversial overhead cable to supply electricity to the grid in Flanders from its wind turbines offshore in the North Sea. Poland and Serbia will continue to draw on their coal reserves. The Italian foreign minister, Antonio Tajani, has suggested that the EU grant its member states more fiscal flexibility as it has done previously for investments in defence capabilities. Others want the EU to also approve a support package of €35bn to help subsidise rising fuel and energy costs. Some European leaders have suggested a relaxation of EU rules on state aid to industry Those countries that have invested in alternatives to fossil fuels are congratulating themselves on the lower costs that they will face compared to their fossil fuel-dependent neighbours. For instance, Spain now derives 60% of its electricity from renewables, whereas Italy obtains 40% of its power generation from imported gas where it is facing a 20% increase in wholesale prices. France, which generates 70% of its electricity from nuclear power, has seen only a 10% rise in its energy bill. Albania has a major HEP plant on its Drin River, which dates back to Communist times, and which has proved a godsend in an age of volatile energy prices and supply bottlenecks.

Individual reactions and approaches are all very well but with the impending energy crunch, Europe as a whole needs to adopt a coherent and coordinated strategy to conserve fuel and energy supplies, avoiding a destructive competition or race to the bottom among individual countries for scarce resources and encouraging the more fortunate to help the less fortunate. Given the total uncertainty regarding the re-opening of the Strait of Hormuz, a policy of wait and hope for the best will no longer suffice. EU energy ministers need to get together with their key partners like the UK, Norway and countries in the Western Balkans in a standing crisis committee, chaired by the EU Energy Commissioner, Dan Jorgensen, to monitor the situation and take decisions on a day-to-day basis. The objective is to avoid serious damage to the European economies, vulnerable to a rapid rise in inflation and fuel and energy poverty among the less privileged in society.

A first step could be to establish an EU Fuel Observatory to give EU Energy Ministers a day-to-day overview of stocks and the supply situation in all European countries. This would make it easier to predict shortages or distribution bottlenecks and identify the options for remedial action. The idea here is to conduct advanced planning based on what crisis management experts call the “reasonable worst-case scenario”. This is the mid-point between the best-case scenario (unlikely) and the worst-case scenario (to be kept in mind as something still potentially avoidable). An EU Fuel Observatory could usefully define the characteristics of each of the three scenarios and then constantly benchmark the evolving fuel supply situation and projected future imports as well as domestic production and storage capacity against them.

The next imperative is jet fuel and the state of the European airlines. The summer holiday season and travel peak are fast upon us and the head of the International Air Transport Association (IATA), Willie Walsh, has warned of jet fuel shortages. Already, some major airlines, like Lufthansa and SAS, have taken pre-emptive action by scrapping thousands of flights, particularly on their less profitable routes. Airlines have requested more government support and latitude when it comes to scheduling and flight-sharing arrangements. Some are seeking changes to EU consumer protection rules to help them to cut costs. Airlines traditionally have hedge arrangements for the supply of jet fuel, which help them to cope with market volatility and price spikes. But these will run out in coming weeks.

The European Commission has suggested a jet fuel sharing scheme, which now needs to be fleshed out. Some member states have their own refining facilities, such as Spain and Finland, and EU Energy Ministers could usefully assess how domestic jet fuel production capacity can be increased. The EU already imports jet fuel from the US but more could be imported from West Africa. The Spanish Minister of Tourism has encouraged holidaymakers to purchase their air tickets immediately before the cost of flights starts to rise.

But price supplements and reduced options are inevitable, given also that there are fewer business class bookings over the summer where airlines like to make higher profits. Short-haul flights, consuming less fuel, may be less impacted than long-haul flights, particularly ones that may need to be rerouted away from the Middle East and airport hubs in the Gulf. Some European airlines, such as Ryanair and Wizz, have expressed confidence in their ability to ride out the jet fuel crisis while others like EasyJet seem more concerned. Where higher jet fuel costs have an impact on already vulnerable airlines, it can be enough to push them into liquidation. This happened to the US low-cost carrier, Spirit, last week. We can expect the jet fuel crisis to bring about more mergers and consolidation in the European aviation sector, as elsewhere around the globe.

Finally, European governments need to draw up contingency plans if things really do get tough. They may need to be ready with lower speed limits to conserve fuel and even fuel rationing schemes, such as a 35-litre limit for drivers at filling stations. Key services, such as ambulances, refuse collection, agricultural machinery and road haulage delivering vital food supplies and products to industry, will need to be prioritised. Commercial shipping and the fishing industry as well. EU Energy Ministers need to have an agreed list of the critical emergency sectors and workers whose day-to-day operations and services they need to protect.

The challenge will be to manage a grinding squeeze on supply and progressively higher costs rather than a sudden fall off in fuel availability. Managing these situations is always difficult for governments and requires effective public communication. As we saw at the onset of the Covid pandemic back in 2020, when toilet rolls disappeared off the shelves of supermarkets,  panic buying and hoarding tend to be the immediate popular reaction to any kind of government guidance on restrictions, and this only makes the supply situation worse when in fact with rational behaviour there is still plenty of a given product to go round.

Another essential debate is how to target government support and subsidies to those most in need. At the moment, nearly every sector is pushing its case and small and medium-sized businesses often accuse governments of privileging large industrial sectors like the car industry or airlines, for instance at the expense of food and drink. Sorting out where aid should be directed will be key. A mistake made during the Covid pandemic and the beginning of the war in Ukraine (when energy costs rose even more sharply than today) was to distribute fuel subsidies too broadly across the population, driving up budget deficits and government borrowing. As a result, European governments have far less financial headroom to do this today for fear of driving deficits and debt to unprecedented levels or that inflation will drive interest rates back up. Already, food costs for many basic household items have risen fivefold over the past five years (according to the UK Climate and Food Intelligence Unit).

Another big economic shock to the system is the last thing that European governments need as they try to spur growth and bring their houses in order after the 2008 financial crisis, Covid and the Ukraine war, to which we can add the requirement to drastically increase defence budgets as the US turns its back on Europe’s security. Now getting through the Hormuz fuel crisis with the minimum disruption and lasting damage to the economy is the next seismic challenge that the EU and its European partners have to face up to.

Of course, the green transition and programmes like Accelerate EU, the Commission’s strategy to promote clean energy and renewables across Europe, are the principal lessons of the Hormuz crisis and the only viable long-term way forward. Some good news here is that in 2025 renewables surpassed coal for the first time in the global energy mix. But crises are all about the immediate and let’s survive the summer fossil fuel crunch first – and foremost.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.