The war against Iran has now lasted a month, and the consequences are becoming visible at a rapid pace. The conflict began as an American-Israeli operation targeting Iran’s nuclear program and the regime in Tehran. But while the United States and Israel are dropping bombs, Europe is absorbing the heaviest economic blows. The result of decades of failed European energy policy, strategic dependency, and a lack of geopolitical power.
On balance, European equities fell 9 percent in the first 4 weeks of the war. Whereas Europe was still outperforming the global index a month ago, it has now returned to lagging behind.
The most immediate impact is for the energy markets. The Strait of Hormuz, the narrowest and most vulnerable geopolitical chokepoint in global energy trade, is nearly closed. Before the war, roughly 20 percent of global oil production and LNG trade passed through this waterway each day. The Iranian threat has brought commercial shipping traffic almost to a standstill.
For Europe, the timing could hardly be worse. After a harsh winter, European gas storage levels had already fallen to below 30 percent of capacity, the lowest level in 5 years. The European gas price on the TTF benchmark has doubled since the end of February to above 50 euro per megawatt hour, the sharpest increase since the Russian invasion of Ukraine in 2022.
The loss of Qatari LNG is making the situation even more acute. Qatar is the world’s largest LNG exporter after the United States and a crucial supplier to Europe. Following the Iranian drone attack on QatarEnergy’s facilities in Ras Laffan, production was halted and the company declared force majeure. Even if the conflict were to end today, it would take weeks to months before Qatari production is fully restored. Europe, which turned massively to LNG after losing Russian pipeline gas, is now facing a second energy crisis in 4 years.
The economic impact is already visible. The eurozone purchasing managers’ index fell to 50,5 in March, the lowest level in 10 months and barely above the stagnation threshold. At the same time, input costs for companies rose to the highest level in more than 3 years, driven by higher energy prices, fuel costs, and disruptions in maritime transport. This is the classic stagflationary mix that policymakers fear most: stagnating growth combined with rising inflation. The European Central Bank now warns that a prolonged conflict could push major energy-dependent economies such as Germany and Italy into recession. German industry, from chemicals to machinery, is facing additional energy costs of 30 to 40 billion euro annually if current prices persist.
The comparison with the United States is sobering. Over the past 15 years, America has transformed into the world’s largest oil and gas producer. The shale revolution has not only made the US energy independent, but also a net exporter. While European companies struggle with doubled energy prices, American industry benefits from relatively low domestic prices. The spread between WTI and Brent, the two leading oil benchmarks, has widened significantly in recent weeks, a direct reflection of the difference between the insulated US market and the international market that must absorb the full geopolitical risk premium. Europe is paying that premium.
What makes this crisis even more painful is that Europe has no influence over the course of the conflict. The war was initiated by the United States and Israel without consultation with European allies. Europe is left to deal with the fallout without having a seat at the table. The response of European leaders has been limited to calls for de-escalation and condemnation of Iranian retaliatory attacks, but there is hardly any sign of an independent diplomatic strategy. NATO Secretary General Mark Rutte stated that Europe “supports” the American attacks on Iran, but that support does not translate into any influence over the direction of the conflict or the conditions for its resolution.
The conflict exposes a structural problem that should already have been clear after the Ukraine crisis. Europe has replaced its dependence on Russian gas with a dependence on LNG, without fundamentally reducing its vulnerability. The supplier has changed, but the underlying risk has not.
As long as Europe remains dependent on imports for more than half of its energy needs, any geopolitical crisis in the Middle East, the Caucasus, or elsewhere will directly affect the European economy. The lesson of the Suez crisis in 1956, the oil crises of the 1970s, the Russian invasion of Ukraine, and now the war against Iran is always the same: strategic autonomy in energy is not a luxury, but a prerequisite for economic stability.
Europe is currently the continent paying the highest price for a conflict in which it is not a party. The combination of rising energy prices, stagnating growth, and increasing uncertainty makes European equities vulnerable in the short term, particularly in energy-intensive sectors such as chemicals, basic industry, and transport.
At the same time, the current crisis could prove to be the definitive catalyst for accelerating Europe’s energy transition. Investments in renewable energy, electrification, and reducing dependence on fossil fuels are no longer just a climate story, but a matter of economic security. The question is not whether Europe must make this transition, but whether it can muster the political will to actually do so now, under pressure.
Han Dieperink is chief investment officer at Auréus Asset Management. Earlier in his career, he served as chief investment officer at Rabobank and Schretlen & Co.