Yves here. Today we are providing a mini-tour d’horizon of the impact of the accelerating energy crisis on Europe and Asia (the Asia analysis by Satyajit Das launches shortly). As readers likely recognize, the European supply reductions and resulting price spikes come on top of the Russia-energy sanctions and resulting inflation and de-industrialization.
Par for the course, this article indicates that policy-makers see ECB rate hikes as the first line of defense, when all central banks can do is kill demand in a blunt way, as opposed to discourage consumption and direct supplies to critical sectors.
I hope readers in region can give sightings on the sort of prices increases they are seeing, since higher cost energy quickly propagates into other products. For instance, a friend in Slovenia says that food costs have increased by 10% in four months. That cannot be the result of fertilizer shortages, since the impact of reductions in planting this spring won’t show up until harvest time.
By Tsvetana Paraskova, an energy and commodities journalist who has contributed to Oilprice.com for nearly a decade, covering global energy markets, commodities, and the geopolitical and economic developments shaping supply and demand. Previously, she worked as a journalist and editor for financial and business news organizations, including iNVEZZ and SeeNews. Originally published at OilPrice
- The Iran war-driven surge in oil and gas prices is pushing inflation higher and slowing economic growth in the EU and Eurozone.
- Unlike the 2022 crisis, Europe is less vulnerable due to lower fossil fuel dependence, increased renewable energy capacity, and reduced energy consumption.
- Rising energy costs have lifted Eurozone inflation to its highest level since 2023, strengthening expectations that the European Central Bank will raise interest rates
The European Union and the Eurozone are feeling the energy shock as the Iran war enters its fourth month.
The spike in oil and gas prices amid the Middle East crisis is raising inflation and moderating economic growth expectations in the EU and the Euro area, which are grappling with the second energy crisis in four years.
Comparisons with the 2022 inflation and gas supply shock in the wake of the Russian invasion of Ukraine are flawed as circumstances are different and the likelihood of runaway inflation is low, analysts and economists say.
Nevertheless, the European Commission and the European Central Bank (ECB) prefer to act earlier this time in terms of tweaking fiscal and policy response, even if the current price shock is still seen as transitory.
The European Commission, the executive arm of the EU, is considering giving the EU member states more flexibility in spending on energy-related measures outside the fiscal framework, sources with knowledge of the discussions told Bloomberg this week.
The EC mulls over a plan to allow EU member states to spend 0.3% of GDP on energy-related measures outside the EU’s fiscal framework as European nations scramble to contain the energy price shock.
The current energy crisis is different from the 2022 shock when Europe lost one-third of its pipeline gas supply. This time around, the EU has reduced its reliance on fossil fuels, both through the expansion of renewable energy, which is weakening the pass-through from gas to electricity prices and through a sizeable reduction in energy use by industry and households, the European Commission said in its Spring 2026 Economic Forecast last month. Related: The Strait of Hormuz May Reopen, But the System Has Already Broken
In this forecast, the Commission expects GDP growth in the EU to slow to 1.1% this year, down from 1.5% in 2025, and 0.3 percentage points lower than expected in the Autumn 2025 Forecast. Inflation is expected to rise to 3.1%, an upward revision of a full percentage point compared to the Autumn 2025 Forecast.
“The conflict in the Middle East has triggered a major energy shock. The EU must learn from past crises: keep support temporary and targeted, safeguard public finances, reduce reliance on imported fossil fuels, and accelerate reforms,” said Valdis Dombrovskis, Commissioner for Economy and Productivity.
The Commission noted in its spring forecast that “In response to higher inflation, the ECB and most other EU central banks are expected to tighten their monetary policy stance or, at a minimum, delay previously anticipated easing measures.”
An ECB rate hike is all but certain when the bank’s Governing Council meets in Frankfurt next week, as inflation in the Eurozone accelerated in May to the highest annual rate since September 2023, analysts say.
Euro area annual inflation is expected to be 3.2% in May 2026, up from 3.0% in April, the flash estimate from Eurostat, the statistical office of the European Union, showed on Tuesday.
Energy is expected to have the highest annual rate in May at 10.9%, compared with 10.8% in April, followed by services (3.5%, accelerated from 3.0% in April).
The inflation numbers bolster the case for an ECB rate hike at the June 11 meeting, even if a small 0.25-percentage-point hike would be a kind of ‘insurance’ hike to show the ECB’s determination to keep inflation expectations anchored, analysts at ING say.
“Given the 2022 experience, the ECB is likely to opt for an ‘insurance’ rate hike. Not that a rate hike will do a lot to affect inflation expectations, but it would be a symbolic move, stressing the ECB’s determination to act,” said Carsten Brzeski, Global Head of Macro at ING.
“Even if the war in the Middle East were to end tomorrow, the damage to inflation has already been done. Inflation has started – and will continue – to hit the eurozone economy,” Brzeski added.
“The only question is whether it will fall in the category of ‘transitory’ or whether supply chain disruptions could create more knock-on effects than ‘only’ on transportation and food prices.”
Well, in Finland fuel is not yet very expensive compared to my home country the Netherlands. I have understood this is (among other things) a result of how fuel is taxed. Yesterday, the average price for E95 (which has 10% ethanol, in Finland) was 2.09/l, while diesel was 2,20/l. In the Netherlands it was 2,25/l and 2,15/l. My friends reported that it has been worse there, especially diesel.
Regarding food, in Finland it feels that vegetable prices haven’t come down at all to “Summer prices”, at least tomatoes. Paprika (peppers) come from the Netherlands and they are at the normal Summer price. I have not yet experienced price increases in other products, coffee is slightly cheaper than before.
I am in envy of your gasoline prices, which work out to a dollar a gallon less than I will pay at the corner station…. :(
I note that the AAA still shows average prices in the US dropping.
From the Guardian (US)
Japan sees shortage of plastic bags, trays and gloves, as Iran war-induced naphtha shortage worsens
A while ago in Finland (AI translated article I suppose):
https://en.yrittajat.fi/uutiset/muovin-hinnan-nousu-aiheutti-shokin-laatikoiden-valmistajalle-pahimmillaan-tama-voi-vaikuttaa-elintarvikkeiden-saatavuuteen/
This article (from April) states that tomatoes are more expensive but the true shock may come still due to relatively long contracts. Plastic packaging is especially mentioned as one area where the rise of oil prices is visible.
https://www.hs.fi/ruoka/art-2000011943049.html
Gas prices are an easy pick since they are advertised on giant billboards. The same for coffee, sugar or cheese is a bit more difficult.
What I know is that my average groceries bag was around 35€ at the beginning of the year and is now around 42€.
Here in France, gas prices are around 2.2€/L, compared to 1.7€/L in January.
One important figure to observe is the report on fuel consumption published by a French industrial association: it has steadily decreased for at least a decade regarding car gas and heating gas. Some see it as a sign of economical décline.
What really amazes me is that six years ago, a 20 cents hike lead to two years of Yellow Vest protests.
Nowadays? Nothing. Some people complain on Monday mornings at the coffee machine, but that’s all.
No trade union, no political party have called for protests, like in Ireland, for example.
I wonder what Macron told them so they just keep their mouth shut about gas prices (even the far right parties protested just for the sake of it and dropped the topic rather quickly).
You are not the only one amazed by this contrast.
Another interesting thing about November 2018 was that it was, at the time, the absolute peak of petroleum production globally. The world was awash with the stuff.
To my mind, the answer is to be found in psychology, then. The Anglo-Saxon world had had its populist revolts in 2016 but in France it had been denied/avoided through the rocambolesque election of Macron. For a while, even suspicious observers might have conceded that he may be an improvement over Hollande’s term (which was dismal). Such “state of grace” was shattered in the summer of 2018, paradoxically right after we won the World Cup (yay!). It revolved around the murky Affaire Benalla.
Having lived through it and paid attention, my memory is vivid (but being human, I’m laced with biases, too). The Affair itself is weird-ish and unimportant but I remember it sort of breaking a spell, some folks finally asking “just how did we get saddled with these guys ?”.
In this context, the Prime Minister, who had done unpopular things already, decided to proceed with the 20 cents hike you mention. The discontentment about this, instead of fizzling out like it did before (and after!) turned into a real thing.
Again, this is all highly subjective, it’s how I lived it.
But wait, how then can we explain the later passivity ? Well I would put it to the waves of crises that followed. The pandemic and the wars have broken whatever mix of hope and restlessness could still be found in French men and women in 2018-9. Peeps are much more resigned, now.
Yes ‘resigned’ is a good description, maybe even ‘depressed’. Not too many smiling faces around in Tarn.
But petrol/gas prices here are 1.98eur/L ( Leclerc yesterday). LPG delivered for home heating is 10% higher than 2 months ago. No obvious big changes yet in food prices or availability. The ‘A68 et aire de covoiturage’ ( Autoroute park and drive) are very busy as a lot more are using buses as well as trains into Toulouse. Some ‘demand destruction’ for gas, but weather has been good so whether that would last into fall and winter is open question.
>in France it had been denied/avoided through the rocambolesque election of Macro
how was that possible? Why does he still rule France? Are the new generations more obedient due to their distractions ,e.g. Smartphones
Good questions. I will spare you the conspiracy theories that state that the vote-counters cheated us ;-)
First the media offensive to get him elected was unheard of. Every TV, magazine, tabloid, serious publications, etc. Macron had hundreds of covers in the months leading to the vote.
Then demography (like all countries that had a post-war baby boom) : those new generations that you mention, unfortunately they don’t weigh at the polls. Plus they’re divided. Macron’s center has managed to coalesce those that want the status quo to continue.
Finally, our current Fifth Republic. I’m not a constitutionalist, but I gather that it’s a pretty “locked” system. Once in, it’s hard to dislodge them.
Deliveries of road fuels are down by 6.5% in April 2026. Overall, the consumption of petroleum energy products recorded a sharp decrease of 9.1% compared to April 2025 [in France].
Source: UFIP
So there you have it.
These figures suggest the EU does not consider the cost of living of their unelectorate is of any consequence.
The demands on the lazy cowards they see them as,to raise defense spending from 1%ish to a hard 5% of GDP, illustrates where the emergency (opportunity) in their minds matters.
God rot them all.
A plague of pustulant boils upon all their scurvid asses!
“The EC mulls over a plan to allow EU member states to spend 0.3% of GDP on energy-related measures outside the EU’s fiscal framework”
Following the experience with the Russo-Ukrainian energy shock, this may well mean subsidies to firms and consumers, and cutting down VAT rates.
Given that the problem is a constraint on productive capacity caused by a reduction of various physical inputs, those measures will probably prove the assertion that “the likelihood of runaway inflation is low, analysts and economists say” to be nonsense. It seems we should disregard everything “analysts and economists” state about the economy.
Especially when they assume that “the only question is whether it will fall in the category of ‘transitory’ or whether supply chain disruptions could create more knock-on effects than ‘only’ on transportation and food prices.” They have not yet heard about plastics and hence packaging, helium for chip production, various laboratory and medical applications, and other industrial processes, sulphuric acid for various industrial processes including metal refining… There is no question: knock-on effects are a certainty.
Personally, I have not yet observed any noticeable price increase in foodstuffs. Seasonal produce such as cherries, strawberries, asparagus, rhubarb are at the same price level as last year, staples like rice, flour, potatoes are also stable thus far.
In little Luxembourg, no increases in price of staples so far (rice, pasta, potatoes), selective increases in veggies (German green asparagus this year a tenner a bundle) and strong increases in meat prices. No clue about processed foods. Selective additional surcharges on wine shipping. In other words, main driver still oil/gas prices especially as many people like their SUVs. Fortunately, we have a very frugal diesel and can use public transport if needed.
That must be a real puzzler for the desk tidy, clock watching and pension minded technocrats.
Stack enough “transitory” shocks one upon the other and next thing you know you’re deeply, deeply underwater 🤨
That is the killer, I do tend to bow towards those who are determined to act, however nonsensically (or symbolically).
But that’s just because I am a subject of the ‘global west*’
*A borderless state as defined by the scribbled napkin Kaja Kallas is currently reading from
From my perch in northern Italy the article generally reflects accurately the rise in fuel costs this year in the 10%-11% range. My recent purchase was €1.91/liter (diesel ~€2/liter) which adjusted for the US$/G = $8.35/gallon. I sense a rise in food prices which is reasonable as nearly all food is delivered to market by diesel powered trucks.
Nonetheless, the article more or less views the war as ‘the war’ when, in fact, it can easily escalate and morph into something else entirely, including massive destruction of energy infrastructure and/or a realignment of West Asia resources toward China and Russian influence.
From my perch in northern Italy the article reflects accurately the rise in fuel costs this year in the 10%-11% range. My recent purchase was €1.91/liter (diesel ~€2/liter) which adjusted for the US$/G = $8.35/gallon. I sense a rise in food prices which is reasonable as nearly all food is delivered to market by diesel powered trucks.
Nonetheless, the article more or less views the war as ‘the war’ when, in fact, it could easily escalate and morph into something else entirely, including massive destruction of infrastructure, as well as, a realignment of West Asia resources toward Chinese and Russian influence and away from US/EU zionists.
In Italy, we are seeing complaints. Justifiably.
First, diesel is up to 2 euro a liter = 9 dollars a gallon. Second, Italian wages are stagnant, going on 30 years. Third, Italian pensions are not generous — my Social Security monthly payment, which is not the high end, puts me in a higher tax bracket here. As some commentators / journalists are noting, this is putting a lot of pressure on the righty coalition government, which already was showing major stress after the No vote in the referendum to mess with the justice system.
Some factors that keep Italy from the basket-case status of Germany, Sweden, and northern Europe (and I won’t mention the advantages of the Italian temperament!):
–Italians per capita use half the energy of USonians and 80 percent of EU citizens. So Italians are at 40 percent of U.S. consumption, per capita.
–The train system works.
–Italians are close enough to, or a have a historic memory of, the disaster of WWII and the deprivations. The motto here is “Non sprechiamo.” Don’t waste.
–This spring, we haven’t had the disastrously bad weather of Northern Europe.
–Italy is like Japan — no energy sources to speak of. Yet Italy also is getting energy from several sources, including Algeria and the pipelines / gas pipelines along the southern tier. So there is less of the blown-up NordStream effect.
–The food distribution system here is wonderful. Every region is highly productive in agriculture. So you have plenty of food coming in from within a few kilometers. Prices are slowly creeping up. Produce in season is not expensive, though.
The old Italian indicator was that a tazzina of caffè (normale) was supposed to cost a euro. In the last five years, that rule of thumb has been wrecked. I now pay from 1,20 to 1,40. So I do see inflation.
Insomma, not yet a disaster. Yet the EU hasn’t exactly covered itself in glory. The governing coalition mainly wants to be vassals of Trumpism. The rightwing in Italy likes to import U.S. economic fantasies like the flat tax and privatization of the health-care system. The current foreign policy runs counter to Italian national interests.
What could possibly go wrong?
Having used and enjoyed trenitalia’s services over the past few years as a tourist, especially its collegiate approach to worker/employer disputes, I hope the enthusiasm for its privatisation has been rolled up and filed in the waste basket.
I feel this article will look like paradise once the real energy shock hits.
Here in Portugal, I see zero advance preparations for the coming tsunami, to use Yves metaphor. Zero.
It’s like January 2020, when Covid was never going to come.
I looked at getting an early Nissan Leaf gen 2 (2014) with a poor battery. Can get a reconditioned replacement 24kWh battery for $4000 (https://greentecauto.com/hybrid-battery/nissan/leaf/nissan-leaf-battery-pack-and-modules-assembly-gen-2-2013-2015/) so if your driving is just local stuff, not a horror commute, that’s a lot safer than a moped.
But my 95MPG (hah – more like 75) scooter is SO much more fun than any boxmobile… ;-)
I’m also a keen fan of not having to spend much time charging it up – ten minutes at the gas station and I’m good for another hundred miles.
Same here in Oz. All warnings about what is coming are not getting through the media and the government is assuring people that all is well. And for unknown reasons of their own, the opposition is going along with it as well. I don’t think that it is going to be a merry Christmas this year.
This was a reply to Rui that got dropped to the bottom of comments.
Thanks. What is serving the government’s narrative that all is under control – the stabilization of prices of gasoline and diesel and even a drop from the record high – will turn against it when they are no longer able to control the prices.
I suspect the EU will go ahead with issuing massive debt to subsidize prices, they will even look forward to the crisis to force the issuing of common debt on recalcitrant countries. Every crisis is an opportunity for the undemocratic federalists that currently dominate the EU. We will only stop the federalization and associated empire expansion when war stops us.
Thanks. What is serving the government’s narrative that all is under control – the stabilization of prices of gasoline and diesel and even a drop from the record high – will turn against it when they are no longer able to control the prices.
In cruder terms, “when Reality {family blog}s the Confidence Fairy hard.”
And I suspect that once that mirage vanishes, things are going to move to the “…and then all at once” phase with disturbing speed.
I don’t know, gathering round a candle is v xmassy.
In oz, I suppose they’ll gather round a single community air conditioner at that glorious time of year.
With the looming energy shortages this summer, we’re already on it!
https://www.youtube.com/watch?v=3gTvvduwdS8 (1:05 mins)
Europe is importing huge amounts of LNG from the USA. LNG can also be used to fuel cars, trucks and ships. If the price of diesel/petrol goes high enough it might be worth converting existing engines and therefore more LNG will be used by the US which would be a disaster for the EU. I cannot find info on the costs/ease of conversion, but I doubt it would be much.
US LNG!
The dubai chocolate of resources.
You can convert gasoline engines but not diesel ones, I believe. At least with cars that is how it works. I doubt LNG can replace diesel’s importance in the economy in the short term. Also, LNG from the US is very expensive.
You cannot run cars on LNG – you are thinking of LPG – liquified petroleum gas. The latter is a mix of propane and butane, so called ‘wet gasses’. LNG (liquified natural gas) is cooled and liquified methane.
Europe is largely self sufficient in LPG – North Sea oil/gas produces a lot of it. But there isn’t the infrastructure in place to make a significant difference.
If you want an alternative to diesel, waste cooking oil works. Back in the last oil crisis in the 1970’s there were many jokes about people wondering why trucks smelled like fish ‘n chip shops.
What about wood gasifiers — just like during WWII?
The modern version is anaerobic digestors – usually for agricultural waste – also from gas from landfills. I know some farmers have used it for agricultural vehicles, mostly as a fun hobby – its not very efficient that way. Its far more efficient to use the gas for power generation or, better still, CHP plants, and then use that for EV’s. But for now, in Europe less than 1% of electricity comes from gasifiers (although I suspect there is more than appears in official figures, as there are numerous small digestors used that probably aren’t counted).
Sorry, by ‘power generation’, I mean generating electricity.
Thanks, that is cool, here is another neat simple ag machine we’ve started using on the island to deal with brush which had previously been burned in giant piles until the fire marshall had enough of that. The county rented out what is essentially a two walled burn barrel with a three inch gap between them and no bottom,the space between being for convection the name escapes me but I call it a brush kiln, a much simpler version of a retort. It’s lit and cold in 8 hrs per fire marshall and it is fantastic, yields great bio char. If I can find a picture I’ll post it later.
Many cities have diesel busses converted to run on CNG. Compressed natural gas. LNG is liquefied natural gas. Once no longer liquid it is normal natural gas.
It also can be used in cars.
At least according to numerous articles I’ve read.
Had a friend whose Mercedes smelled like french fries….
UK diesel is £2.05, it was £1.65 at Christmas.
Food prices are astonishing but I do shop at Waitrose and buy organic. Beef continues to climb. Organic ribeye at £72/kg roughly or c. £16 for an 8oz steak (ribeye). Was about £8-£10 before the post-Covid increases. Ready meals have jumped similarly, e.g. £16 for short ribs for two. You could probably save 20% at Tesco, more at Aldi or Lidl and more again if you didn’t buy organic.
Fresh produce prices are OK for vegetables. Soft fruit is very expensive, despite the boom in UK berry production (under plastic…).
Store cupboard items are hard to tell. Coffee and chocolate and oil are up, I think biscuits and treats etc are being held down as loss leaders. Same with alcohol. Ice cream is up.
Eating out is also astonishingly expensive. There is no change from £50 for two eating out even at cheap and cheerful Asian restaurants. That’s a starter and a main and a drink (tea, soda, beer); possibly not even the starter.
I have cut right back on eating out and on driving. I have protected the food shop as far as possible.
Even broadband has gone up. Unasked for upgrade in service because copper line is being phased out and fibre to the home installed has resulted in 20% hike from £30 to £36pcm.
The cost of eating out in London has become staggeringly expensive. Nearly everybody I know has dramatically reduced their restaurant visits.
“An ECB rate hike is all but certain when the bank’s Governing Council meets in Frankfurt next week, as inflation in the Eurozone accelerated in May to the highest annual rate since September 2023, analysts say.”
How would that help? The problem is not one of demand–in fact, you would think that Europe would need as much new investment (in energy infrastructure and electric transportation, for example) as possible. Also, if the EU is trying to essentially discourage China et al. from bumping up its currency, this is a pretty counter-productive way of doing it.
However, I am absolutely not an economist and have never even bothered taking a course in economics before, so maybe there is something obvious here that I am missing.