After a full month from the beginning of the war in the Middle East, the global economy is struggling with what the International Energy Agency has framed as the greatest energy security challenge in history. The military conflict involving Iran, which escalated sharply on 28 February, moved beyond a regional fighting into a systematic global supply-side shock. The key area of this crisis is the Strait of Hormuz, through which, under normal circumstances, approximately 20% of the world’s petroleum and 19% of its Liquefied Natural Gas flows. Since the closure of the Strait on 4 March, the “geopolitical risk premium” on oil rose sharply. For Europe that is already navigating a transition away from Russian fossil fuels, the double-trouble of disrupted oil and stranded Qatari LNG has forced a total reorganisation of the Union’s energy strategy in less than 30 days.
Strategic Autonomy Meets Emergency Management
The EU’s strategy is currently operating on two fronts: immediate firefighting and long-term change of priorities. The European Commission gave the green light for the Member States to deploy targeted state aid so that they can protect energy-intensive industries and vulnerable households from the $120/bbl peak. Unlike the response seen four years ago during the Russian invasion of Ukraine, which was largely reactive, the 2026 strategy relies on the REPowerEU 2.0 framework, which was legally codified just last month. At the same time, the oil coordination group coordinated by the Commission and the EU Countries is meeting weekly to manage “jet fuel and diesel” security, signalling that the EU’s priority is also refined product availability, on top of crude oil. By making the security of middle distillates one of the priorities, the EU is attempting to prevent a collapse of the logistics and transport sectors.
On a long-term front, Europe has fast-tracked prior authorisation rules for energy imports outside of Russia and the Gulf countries, meaning that the oil that comes from elsewhere will find its place on the market faster. This can be regarded as a necessary move to maximise flows from less problematic trade partners such as United States and Norway, as well as northern African countries, thus effectively creating a western energy corridor to bypass the instability associated with the Middle East, especially in the wake of the Iran war.
The Council’s Move
On 11 March, the European Council, in coordination with the IEA, announced the largest coordinated oil stock release in history, amounting to a total of 400 million barrels. The Council realised that the “wait and see” approach of previous crises that was characteristic to Europe would not work when 20 million barrels per day were missing from the market. Europe is contributing roughly 107 million barrels to this release. It is worth noting that 68% of this is being released as refined products, meaning diesel and jet fuel, rather than crude oil. This is a strategic decision to go around the potential delays with the refineries and ensure that fuel arrives at the pumps and airports immediately. The goal most likely isn’t to bring prices back to 60$, but to mitigate the peak of 130$. History shows that a release of this scale can reduce prices by 8-12% in the short term, which in effect provides a 3-6-month window for diplomatic de-escalation or supply chain rerouting.
Eye of the Storm and the Industry Reaction
The airline industry is currently the most visible casualty of the Iran shock. Jet fuel prices have essentially doubled in just four weeks, yet the industry reaction is more nuanced than in previous decades. Major European carriers such as Lufthansa or EasyJet entered 2026 with serious hedging strategies, locking in 70-80% of their fuel needs at 2025 prices. This has acted as a financial safeguard that prevented immediate bankruptcy for the major players.
Even if an airline was mindful of the risks and bought its fuel while it was cheaper months ago, those savings can only last so far when global prices are hitting record levels. This means that it is expected from the airline companies to bump up the price for about 20-25% for the flight fares. This is likely to occur both because of the rising oil prices, and because of rising insurance prices for airplanes. It can be seen as a calculated move on behalf of airline companies to get people to travel a bit less by making travel more expensive. Doing so allows companies to lower the total number of flights, which further makes them “save” more of the cheap fuel they have in reserves.
For broader industries such as manufacturing and automotive, the reaction has been changing the business model because the high cost of oil made the old ways of working too expensive to maintain. Factories are cutting out energy-heavy shifts and some of them are trying to install their own solar or wind power so they don’t have to rely on the expensive power grid. Companies that use oil as a raw ingredient already started switching to bio-based or recycled alternatives to keep their production lines running. For everyday purchases, whether it is a packaged snack or a piece of clothing, if it involves oil-based fabrics or long-distance shipping, it is going to cost more at the checkout.
The car makers are shifting even more of their budget away from legacy engines and putting it into electric vehicles because the demand for gas-powered cars is dropping as fuel prices rise. The EU expects industry to accelerate the electrification of heat and the adoption of hydrogen. This oil crisis might be a market signal for the stakeholders that the fossil fuels alone are not reliable to combat energy crisis alone. For consumers, the prices of traditional cars are expected to rise, while those who opt for the EVs can be more peaceful, as this crisis will not influence that sector as much as the legacy automobiles. Still, a slight short-term increase in price for EVs might occur if the demand spikes too fast, e.g. if consumers decide to massively switch to electric vehicles.
Between the Oil Shocks of the Past and the Uncertainty of Future
The scale of the current shock the world is experiencing is five to six times larger than the previous oil shocks of 1973 in the wake of Yom Kippur War or 1979 during the Islamic Revolution in Iran. The total closure of Hormuz was a black swan event that was always theoretically analysed, but it was never realised until now. Another important difference is that in 1973, gas was a local commodity. The blockade of Qatari LNG makes this a dual crisis, as Europe is fighting for both its heat and its mobility simultaneously. However, unlike the oil shocks in the 70s, the world in 2026 has more alternatives. For every dollar oil rise, the ROI on a wind farm or an EV fleet is expected to improve. This is the first oil shock where the exit strategy (renewables) is already on an industrial scale.
Looking forward, the next several months will be the most decisive. The EU could move in the direction of joint procurement of oil, similarly as it did in 2023 after Russia’s full-scale invasion in Ukraine. The industrial actors are expected to search for alternatives to fossil fuels that could fit their business model, while the aviation sector in particular might see some of the smaller and unhedged market players facing insolvency. If the 400-million-barrel release stabilises the market, the EU may avoid a recession. Still, the industry must prepare for a permanent risk premium. Regardless of that, a gas price spike in July is expected as Europe tries to refill their oil storages, all while 20% of global supply of LNG is currently blocked. Households and industry should prepare for higher bills even during the typically cheaper months.
Even if the Strait of Hormuz reopens tomorrow, this war has proven that the global energy supply chain is more fragile than many initially thought.
