70 Billion Euros Burned in 14 Days! European Giants in Turmoil, Is an Energy Crisis Unavoidable?

What are the potential risks of the EU’s temporary measures to address soaring energy prices?

As Iran launched a devastating strike on a key natural gas facility in Qatar, Europe is facing a potential multi-year energy supply nightmare.

The EU is preparing for a prolonged energy price shock. Previously, Iran paralyzed a critical natural gas plant in Qatar, raising concerns about a supply shortage lasting for years.

At the Brussels summit on Thursday, EU leaders expressed anxiety over the increasingly bleak economic outlook and called for a “pause” on attacks on energy facilities amid conflicts between the US, Israel, and Iran. According to insiders, inside the meeting, Italian Prime Minister Meloni was particularly emotional, warning that the current energy situation is extremely severe.

Dutch Prime Minister Rutte said that if these attacks on energy do not stop, “the global impact could be very serious.” An Italian government representative did not comment on Meloni’s remarks.

These concerns are not unfounded. On Thursday, natural gas prices surged to their highest levels in three years, and the European Central Bank stated that a prolonged supply disruption could push inflation in the Eurozone to 6.3% and trigger a brief recession. Data from the EU Commission shows that in the past two weeks, prices have increased European energy bills by €7 billion (about $8.1 billion).

Given that Europe has just begun addressing its low growth issues and untangling complex ties with the US, this bleak outlook is ill-timed. The success or failure of these plans depends on whether Europe can lower its energy prices. Even without considering the price shocks from the Iran conflict, energy costs paid by European businesses are already several times higher than those of their competitors.

The events of Thursday serve as a wake-up call: Europe remains vulnerable in the face of global markets, and the EU has few tools at its disposal to respond to crises in the short term.

“This is definitely a worrying situation,” said Kyriakos Pierrakakis, President of the Eurogroup, before meeting with EU leaders. “We are discussing all possible scenarios, whether better or worse.”

The latest surge in energy prices was triggered by Iran’s missile attack on Ras Laffan industrial zone in Qatar, causing widespread damage to the world’s largest liquefied natural gas (LNG) plant. QatarEnergy CEO Saad al-Kaabi told Reuters that two facilities, accounting for 17% of the country’s LNG exports (about 13 million tons annually), were affected and would take three to five years to repair.

French President Macron said on Thursday, “If capacity itself is damaged, the impact of this conflict will be far-reaching.”

The EU’s Oil Coordination Group, composed of representatives from member states, also expressed growing concern during its internal meeting.

Since the US and Israel launched military strikes against Iran, officials have insisted that the Middle East crisis would only affect prices, not threaten supply. However, on Thursday, the group for the first time acknowledged that they might soon need to reassess this view.

A briefing noted: “If energy flows through the Strait of Hormuz are interrupted for an extended period, the EU will reassess the security of its oil supplies.” It also added that the EU relies heavily on diesel and aviation fuel, and is paying close attention to supplies of these fuels.

At the summit, EU leaders called on the European Commission to urgently propose targeted temporary measures to cope with soaring fossil fuel import prices. However, these options on the table come with obvious side effects. For example, member states could choose to cut electricity taxes, but this could impose significant fiscal burdens on countries already struggling with high deficits.

Ten EU countries, including Italy and Poland, also proposed easing the EU’s Emissions Trading System (which charges for carbon pollution) to help reduce industrial burdens. But this would sacrifice a significant source of revenue and weaken incentives to invest in renewable energy, which officials see as the long-term solution to lower energy prices.

“Europe must focus on developing domestic energy sources,” said Spanish Prime Minister Sánchez. “It’s not oil or natural gas, but solar and wind energy.”

In the final conclusions, leaders urged the European Commission to present a broader review of the Emissions Trading System by July. This system imposes pollution limits on about 10,000 facilities involved in power generation and manufacturing.

“We are not questioning the Emissions Trading System,” said German Chancellor Scholz. “These are just adjustments; fundamentally, this is not a disruptive change.”

Meanwhile, with the vital Strait of Hormuz nearly closed due to Iran’s threats, global supply chains are being severely disrupted, and warnings about the economy are growing louder. The key question now is: how long will this conflict last? Once it ends, how quickly can this critical passage reopen?

The World Trade Organization warned on Thursday that if the conflict causes energy prices to remain high for an extended period, global trade in goods will slow further. The WTO said that in such a scenario, the 2026 merchandise trade forecast would be cut by 0.5 percentage points, and the outlook for services trade would be reduced by 0.7 percentage points.

Just days ago, EU Economic Commissioner Valdis Dombrovskis told EU finance ministers that prolonged energy price surges could reduce the 2026 economic growth rate by as much as 0.4 percentage points, a significant drop from the previously forecast 1.4% growth.

On Thursday in Frankfurt, ECB President Lagarde warned governments not to overdo economic interventions. She stated:

“Any fiscal measures to respond to energy price shocks should be temporary, targeted, and tailored.”