Europe is bracing for a second energy shock in less than half a decade, with the Iran war driving up fuel costs, squeezing industry and prompting Brussels to unveil a sweeping package of emergency measures aimed at shielding households and businesses from the fallout.
The European Commission announced the proposals on Wednesday, framing the response as a recognition that the economic damage is no longer a distant threat but a developing reality. The bloc, which only recently emerged from the crunch triggered by Russia’s 2022 invasion of Ukraine, is once again confronting fuel shortages, industrial distress and mounting fears of recession.
“For the second time in less than five years, Europeans are paying the price of Europe’s dependency on imported fossil fuels,” the Commission said in its statement.
What Brussels is putting on the table
At the heart of the plan is a new pan-European body designed to identify looming shortages of jet fuel and diesel and to coordinate the release of emergency stockpiles or the sharing of supplies between member states. That initiative responds directly to warnings from the International Energy Agency and the airports group ACI Europe that the continent, which imports roughly 70 per cent of its jet fuel, could face outright shortages within weeks.
The wider package also includes income support for struggling households, energy vouchers and proposed cuts to electricity taxes. Olivier Jankovec, director general of ACI Europe, welcomed the measures but urged member states to go further by “urgently” suspending aviation taxes “so as to cushion price impacts”. The industry group has warned that a sustained reduction in air travel would “significantly harm the European economy”, with countries reliant on tourism particularly exposed.
The Commission has also raised the cost to the bloc of the crisis so far. Since the start of the conflict, Europe has spent an additional €24 billion (roughly $28 billion) on energy imports — more than $587 million a day — “without receiving a single extra molecule of energy”.
Why the pain will outlast the fighting
A key theme running through the Commission’s assessment is that even a swift end to hostilities would not quickly restore normality. “Even if hostilities ceased immediately, disruptions to energy supplies from the Gulf will persist for the foreseeable future,” it warned.
Neil Shearing, chief economist at the consultancy Capital Economics, cautioned that Europe could tip into recession if the war runs through the first half of this year and “disruptions to energy supplies are more extensive”. The International Monetary Fund has already trimmed its growth forecast for the 21-nation euro area and issued a markedly sharper downgrade for the United Kingdom.
The damage is visible across sectors. Lufthansa Group said on Tuesday it would cut 20,000 flights from its schedule through October to conserve jet fuel, noting that the price had doubled since the start of the conflict. Some European fishermen have stopped putting to sea altogether, with the Commission last week triggering a “crisis mechanism” to permit direct financial support for fishers and fishmongers. Costas Kadis, the EU commissioner responsible for fisheries, said “the people who bring seafood to our tables deserve our full support when a crisis beyond their control threatens their livelihoods”.
The strain extends deeper into industry. Germany’s BASF, one of the world’s largest chemicals producers, has raised prices on products ranging from formic acid used in animal feed to household goods, in some cases by more than 30 per cent. The German Chemical Industry Association told CNN this week that the war had delivered a “significant blow” to hopes of recovery in Europe’s largest economy, warning that sustained shortages of orders and unprofitable plants meant “further production shutdowns and job cuts are to be expected”.
Britain feels the squeeze
The pressures are now spreading visibly into the United Kingdom. Official figures released on Wednesday showed UK inflation rising last month for the first time since December, propelled by a sharp jump in fuel prices. Food costs and air fares also climbed at a faster rate in March.
Fuel retailers reported a rise in thefts at petrol stations, including by first-time offenders — a sign, they said, of tightening household budgets. Adam Deasy, an economist at PwC UK, suggested the worst is still to come. “This is just the first wave of the energy shock, primarily showing up in higher prices at the pump,” he said. “We are yet to see the knock-on impact of price pressures in… byproducts to oil and gas, such as fertilizer, helium, plastics or metals.”
Shortages of essential inputs are already emerging. The UK government last month restarted a mothballed bioethanol plant to secure supplies of carbon dioxide, which is used in healthcare and food production. The move was made necessary by disrupted EU fertiliser production — a consequence of surging natural gas prices — which has in turn reduced the availability of CO2 imports, since the gas is a byproduct of fertiliser manufacturing.
The same gas price surge is feeding through to UK electricity bills, which are linked to wholesale gas costs. On Wednesday, Energy Secretary Ed Miliband set out a series of measures, including the expansion of rooftop solar installations at schools and the development of more renewable energy projects on public land, which he said would “help cut bills for families and deliver more clean, homegrown power”.
A continent rediscovering old vulnerabilities
Taken together, the week’s developments — from the Commission’s emergency package to rising UK inflation, from cancelled Lufthansa flights to idle fishing boats — point to an economy that is again being reshaped by events in a distant conflict zone. Brussels has been explicit that reducing dependence on imported fossil fuels is the only durable remedy, but it is a structural shift measured in years, not weeks.
In the meantime, Europe is left managing the immediate shock: protecting the most exposed households and industries, pooling what supplies it can, and watching to see how long the war — and its economic aftershocks — will last.
