Soaring European natural gas prices, driven by the Iran war and the prolonged closure of the Strait of Hormuz, threaten to inflict significant economic damage on the continent at a critical moment when it is racing to rearm, expand artificial intelligence capabilities, and compete with China. The damage from this energy crisis could prove long-lasting, according to a commentary by Ron Bousso, Reuters Energy Columnist, published on September 8, 2026. Benchmark European gas prices climbed to 75 euros per megawatt hour (MWh) last week, more than double their level a year ago.
These prices reached their highest level since late 2022, when Russia's full-scale invasion of Ukraine prompted Europe to cut off vast volumes of Russian pipeline gas. The current crisis stems from the closure of the Strait of Hormuz more than six months ago, a disruption that has largely choked off approximately one-fifth of global liquefied natural gas (LNG) supplies and tightened markets worldwide. This supply crunch has sparked fierce competition between Europe and Asia, with a scorching summer across much of Asia lifting demand for power and cooling.
Large volumes of gas that would typically have gone to Europe were instead diverted eastward during the critical summer months, severely disrupting Europe's efforts to refill its vast underground storage network ahead of the winter heating season. European gas storage sites are currently around 66% full, the lowest level for this time of year in 15 years and roughly 12 percentage points below last year's level, according to Gas Infrastructure Europe data. Inventories typically peak in early November.
In 2025, they topped out at 83%, or around 85 billion cubic metres (bcm). This year, storage levels are likely to peak at only 70% to 75%, according to Reuters Open Interest (ROI) estimates. The situation becomes even more concerning when examining individual countries.
Germany's storage network, the largest in Europe, is only 54% full, while storage facilities in the Netherlands, another critical regional gas hub, stand at just 48% of capacity. Entering winter with inventories at such low levels will increase both countries' dependence on spot LNG cargoes and pipeline imports from neighbouring states, putting further upward pressure on gas prices across the region. The massive disruption to Middle Eastern exports is unlikely to ease soon.
LNG exports from the Gulf, primarily from Qatar but also from the United Arab Emirates, fell by more than 85% between March and August compared with a year earlier, according to Kpler data. QatarEnergy has already notified key customers that it has extended its force majeure suspension on LNG deliveries until early November. However, the global LNG market has been supported by rapid production growth elsewhere, particularly in the U.S. and Canada.
According to the International Energy Agency, LNG production outside the Gulf grew by 18%, or around 27 bcm, in the year to the end of June, offsetting roughly 75% of the losses from the Middle East. This helps explain why prices, while at painful levels, remain far below the extraordinary peaks reached during the 2022 energy crisis, when benchmark European gas prices briefly exceeded 300 euros per MWh. Previous attempts by governments, including Germany's, to intervene in gas markets have often backfired, distorting incentives and delaying refilling efforts.
At the same time, reducing dependence on gas through greater use of renewables and nuclear power is a long-term project that will take years, if not decades, to fully deliver. European governments are not in a position to repeat the massive subsidy programmes deployed after the 2022 shock. Europe's gas bill reached 117 billion euros in 2025, even as consumption remained around 17% below pre-crisis levels, according to Bruegel estimates.
With prices now substantially higher, the region's import bill is likely to rise sharply again in 2026. This leaves Europe's economy in a vulnerable position at precisely the wrong moment. Tensions with Moscow are spiking, with an attempted Russian drone attack on Germany last week.
The Trump administration is pressing Europe to spend more on its own defence. The continent is seeking to rapidly expand production of ammunition, military equipment and other defence technologies. At the same time, Europe is scrambling to make up ground in the artificial intelligence arms race, where it finds itself far behind the U.S. and China.
Catching up requires heavy investment in power-hungry data centres. Meanwhile, Europe's manufacturing sector is finding it harder to compete with China. European carmakers, in particular, have lost significant ground to their lower-cost Chinese competitors.
Volkswagen recently announced the biggest restructuring in its 89-year history. Another prolonged surge in gas and power prices would worsen Europe's cost disadvantage relative to rival economies. Manufacturers would either have to absorb higher energy costs, squeezing profits and investment, or pass them on to consumers, reducing their competitiveness.
In short, expensive energy threatens to undermine the very ambitions Europe sees as essential to its future economic and strategic autonomy. The European Commission stated on Friday that despite low storage levels, the bloc faces no immediate risk to security of supply this winter. However, the real issue is not whether Europe can secure enough gas to get through the winter.
It is how much it will have to pay. For now, it appears to be a cost the region cannot afford, according to Bousso's analysis.
Source: reuters.com