Europe faces mounting economic and political pressures as natural gas storage reserves remain below historical averages ahead of the winter heating season, coinciding with near-record prices for diesel and other refined oil products, according to reporting from Reuters on September 17, 2026. Europe's gas storages are currently 69% full, below the 85% average for this time of year over the last five years, according to industry body Gas Infrastructure Europe. Germany and the Netherlands, which together hold 35 of the bloc's storage capacity, are lagging significantly as high energy prices resulting from disruption linked to the U.S.-Israeli war on Iran have deterred private companies from purchasing gas and governments from enforcing national storage targets.
The situation is particularly acute in Germany, Europe's largest economy, where the Alternative for Germany party won state elections on a platform demanding peace with Moscow and restoration of contracts for cheap Russian gas. Further political gains by the far-right party in weekend state elections could increase pressure on Chancellor Friedrich Merz as he considers costly measures to lower fuel prices. Analysts attributed the delayed restocking to calculations that the Iran conflict, which began at the end of February, would end quickly and allow companies to replenish storage at affordable prices.
However, this assumption increasingly appears questionable as each month of delay raises pressure on prices as peak winter usage approaches, according to UniCredit strategist Jonathan Schroer. Global oil prices have climbed above $100 per barrel in response to Middle Eastern conflict escalation. Petrol prices across the EU are 24% higher compared with a year earlier, while diesel prices have increased 38%, partly due to Ukrainian strikes on Russian energy infrastructure.
Jet fuel costs have risen more than 100%. The gas benchmark is trading at €81 ($93) per megawatt hour, up 150% on a year earlier and above the European Central Bank's adverse forecast. Morgan Stanley predicted it could even reach €100 per megawatt hour depending on weather conditions, with analysts warning that relying on weather for supply security represents a risky strategy.
Other analysts cautioned that storage sites could shrink significantly, with prices remaining elevated. Jack Sharples at the Oxford Institute of Energy Studies stated that even a normal cold winter, not dramatically cold, could heavily deplete storage reserves, subsequently requiring imports of liquefied natural gas in 2027 that could tighten global LNG markets for months. Research from the Bank of Italy published in June found that while oil shocks produce short-lived inflation, gas shocks generate stronger and much more persistent effects that seep into underlying inflation most closely watched by the ECB.
This outlook has led financial investors to expect the ECB will need to raise interest rates three or four additional times to meaningfully restrict economic growth through higher borrowing costs. ECB policymaker Peter Kazimir acknowledged the growing focus on gas and electricity prices rather than oil and fuel prices in monetary policy considerations. Economists identify airlines, chemicals, automobiles, and building materials as the most vulnerable sectors, while energy firms, utilities, and banks are expected to be net winners despite higher interest rates dragging on lending growth.
Governments across Europe are responding to mounting pressure with fiscal measures. Italy's ruling conservative coalition announced it would eliminate road tax for 14.5 million cars and motorcycles from next year at a cost exceeding €2 billion, in addition to previously implemented diesel excise duty cuts costing €2.8 billion. However, such measures add to mounting government debts without addressing underlying structural challenges.
French Finance Minister Roland Lescure cautioned against blanket measures affecting all citizens, stating that such policies ultimately require funding through additional public spending and debt accumulation. Germany remains notably exposed to energy cost pressures given its energy-intensive industrial base, while other nations face constraints from weak public finances limiting their ability to implement support measures.
Source: reuters.com