Middle East conflicts are pushing Europe toward a second energy crisis in five years, with the risk unfolding as a slow-motion crisis rather than the sharp price spikes seen in 2022 and 2023. The strain comes as fossil fuel costs hit historic highs worldwide and doubts grow over whether supply chains can withstand the pressure.
The Strait of Hormuz, the unavoidable exit route for oil and gas from the Persian Gulf, has seen only a handful of ships sail each day, either at their own risk or escorted by the U.S. Navy, a tiny fraction of the traffic that passed through before the first strikes on Iran earlier this year. Saudi Arabia, the world's largest crude exporter, was put largely out of action for more than a week after attacks by pro-Iran militias forced the East-West pipeline, its only alternative to Hormuz, to shut down, although Reuters reported on September 24 that operations on the pipeline had resumed, with tankers awaiting loading.
A Perfect Storm of Supply Shocks
The Houthi rebels, described as always dependent on Tehran, are expanding their control over Bab al-Mandab, another crucial maritime passageway. Russia, with its refineries severely damaged by Ukrainian drone strikes, is about to extend its ban on diesel exports for another month. Supplying Russia's domestic market is now almost a pipe dream. It's a quartet of adverse factors that leaves the world on the brink of another energy crisis.
Francisco Blanch, global head of commodities and derivatives at Bank of America, said the situation has deteriorated a lot in the past two weeks since the Houthis took control of the Bab al-Mandab Strait and following the attacks on the Saudi pipeline. He said what we are seeing is unprecedented. Blanch said the disorder in the Middle East is extreme, and there is neither enough crude on the market or, above all, enough refineries available to process it.
The main bottleneck in spring was jet fuel, but now concerns center on diesel, mirroring what happened in the early months of Russia's invasion of Ukraine. Moscow, a historic European supplier, has nearly half of its refining capacity offline. Riyadh has effectively disappeared from the market, with three key facilities operating below capacity — the Yanbu, Samref and Yasref refineries, all on a Red Sea now turned into a tinderbox — and has been forced to pause all crude and fuel shipments to Europe.
Prices Signal Major Supply Crisis
Blanch said neither diesel nor heating oil have much of a short-term solution. He said prices, with the gallon above $6 in the U.S. and the liter over €2 in most of the EU, signal a major potential supply problem if supply chains have not been restored by Christmas. Thierry Bros, a professor at Sciences Po Paris, said the world could definitely slide into a second major energy shock in less than five years, especially Europe because of its external dependence and because fuel subsidies continue to delay electrification. He said that since Europe doesn't have gas or oil, its only exit is to diversify and to destroy demand.
Blanch said very difficult weeks lie ahead. He said one major unknown is what will happen after the U.S. midterm elections on November 3, in which polls point to a historic reverse for the Republican Party, which may even lose both houses of Congress. He said the big question is how Trump will react and whether or not that might open the door to diplomacy.
Diesel, gasoline and kerosene are largely interconnected, and refineries can choose to produce more of one product at the expense of others. That's been happening for several months, with facilities that favored jet fuel now prioritizing diesel. The result is that everything is much more expensive, and analysts consulted share the feeling that prices don't fully reflect the severity of the situation.
Europe's Vulnerability Exposed Again
Blanch said one factor that could make things even worse would be Trump banning U.S. fossil fuel exports. He said U.S. consumers might benefit from lower prices, but it would do great harm to the U.S. economy, which is currently being heavily supported by those sales. Eurasia Group analysts Gregory Brew and Henning Gloystein wrote in a recent client note that the impact of such a potential veto would be particularly severe in Europe and Latin America, by far the most dependent on U.S.-sourced fuels. Samantha Gross of the Brookings Institution said real shortages may hit countries that cannot afford to pay much more for fuels.
A full-blown energy crisis hasn't yet arrived only because of four mitigating factors with few historical precedents. First, the world market was awash in oil before the Trump-Netanyahu duo launched the first strikes on Iran, and supply exceeded demand. Second, increasingly necessary electrification is reducing demand for gasoline and diesel. Third, strategic reserves were full, though that's no longer the case after their rapid use in the initial stages of the closure of Hormuz. Fourth, the global economy depends far less on oil and its derivatives than ever before.
The closure of Hormuz has sidelined Qatar, the world's second-largest exporter of liquefied natural gas, which has been forced to cancel the bulk of its sales to the EU and Asia citing force majeure. Continental reserves of LNG, key for industry and heating, are at their lowest in more than a decade and about 20 percentage points below where they usually stand at this time of year. Ana Maria Jaller-Makarewicz, an analyst at the Institute for Energy Economics and Financial Analysis, said what we hope is that this winter, like the last, is not too cold in Europe, because if it is, we could have serious problems. She said Europe is facing a slow-motion crisis. Qatar is absent from the market, flows from Norway are near their limit, and competition with Asia for LNG is much greater than a few months ago. Gross said Europe will have to pay more to attract LNG carriers originally destined for other parts of the world. Jaller-Makarewicz concluded that uncertainty is enormous and the only clear thing is that there's no clear solution in sight.
Why This Matters:
Europe's second energy crisis in five years exposes the structural fragility of a continent dependent on external suppliers and vulnerable to geopolitical shocks it cannot control. The slow-motion nature of this crisis — diesel shortages building, LNG reserves depleting, prices rising steadily rather than spiking — makes it harder to mobilize emergency responses but no less dangerous for households facing winter heating bills and industries dependent on affordable fuel. Thierry Bros's warning that fuel subsidies delay electrification points to the core policy failure: Europe has spent years cushioning consumers from price signals rather than investing in the energy transition that would reduce dependence on volatile fossil fuel markets. The only long-term exit from this cycle is accelerated electrification, renewable energy deployment, and demand reduction — precisely the Green Deal investments that some member states have resisted. With strategic reserves depleted and Qatar offline, Europe enters winter with less buffer than at any point in a decade. The human cost will fall hardest on those least able to pay: pensioners on fixed incomes, working families in poorly insulated housing, and industries in countries without the fiscal space to subsidize energy prices indefinitely.