Despite the major fall in oil prices after the US and Iran confirmed a two-week-long ceasefire, Europe may not yet breathe a sigh of relief due to the long-lasting impact of energy supplies on which the bloc heavily relies.
The Iran war and the de facto closure of the Strait of Hormuz have triggered the largest supply disruption in the history of the global oil market, according to the International Energy Agency (IEA). The strikes on Gulf facilities are expected to have a multi-year impact on gas supply.
Europe is significantly affected, even though it sources only a small share of its oil and gas directly through the Strait of Hormuz, which has been effectively controlled and mostly blocked by the Iranian forces up until the ceasefire.
Opening the strait was a non-negotiable part of the ceasefire, as the chokepoint is essential for the global oil and LNG shipments. In 2025, nearly 15 million barrels of crude oil per day passed through the strait, the IEA says. Of this, around 600,000 barrels a day, or just 4%, were routed to Europe, compared with the EU’s daily needs of 13 million barrels.
Even so, a rapid fall in petrol prices in Europe is unlikely, even if a peace deal were reached following the ceasefire.
“Even if that peace is here tomorrow, still we will not go back to normal in the foreseeable future,” the EU’s Energy Commissioner Dan Jørgensen said last week.
How global prices are affecting European imports
The EU imports 80–85% of its oil, according to Eurostat, from a wide range of suppliers. The US is the largest, accounting for 15.1% by value, followed by Norway and Kazakhstan.
Most global crude trade is priced against Brent crude, the main international benchmark.
Prices for next month’s delivery rose from $72–$73 per barrel before the war to nearly $120 at the peak, before the ceasefire was agreed upon. Even after the ceasefire, the price was around $93 on Wednesday.
European gas prices have also climbed since 28 February, when the war started. Futures rose to €50 per MWh from about €35.5 before the war, peaking at €61.93/MWh on 19 March. The price settled around €44/MWh on Wednesday, after the ceasefire.
How global prices reach European consumers
In many European countries, electricity prices are set by the most expensive source, often gas.
“Rising gas prices impact British and European energy bills via both the direct cost of gas and the increased cost to generate electricity through gas-fired power plants”, said ICIS UK and European Gas Specialist Ethan Tillcock, who talked to Euronews Business before the ceasefire.
Fixed contracts and government support can delay or soften the impact. In Germany, wholesale gas prices linked to TTF influence electricity prices by around 40% and household gas prices by roughly 50–60%, with the rest made up of taxes, network charges and policy costs.
For oil, the French central bank estimates that a 1% increase in refined fuel prices leads to about a 0.75% rise in pre-tax fuel prices and around a 0.3% increase at the pump, depending on taxes.
A $10 rise in crude oil prices adds roughly 3–6 euro cents per litre for European consumers, depending on national tax systems. Exchange rates also matter: since oil is priced in US dollars, a weaker euro raises costs even if benchmark prices are unchanged.
To limit price increases, ministers from Italy, Germany, Spain, Portugal and Austria have asked the EU to consider a tax on excess energy profits.
What needs to happen for prices to fall
Europe has some tools to ease pressure, including strategic reserves—part of the IEA’s 400 million barrels—and national measures such as tax cuts, subsidies and rationing.
However, “these can only temporarily soften the situation,” said Andrei Covatariu, a nonresident senior fellow with the Atlantic Council's Global Energy Center, who talked to Euronews Business before the ceasefire.
The IEA estimates Gulf countries have cut oil production by at least 10 mb/d due to the disruption, about 10% of global demand.
But physical supply is only part of the story. Uncertainty also has a role to play.
There is “a large risk premium driven by uncertainty, but we are also noticing a large real disruption in flows and production—so you’re not looking at a purely psychologically driven market,” said Covatariu.
What is driving oil prices higher
Beyond supply concerns, traders are watching war-risk insurance premiums and tanker freight rates, both key to the delivered cost of crude.
Shipping costs have surged. The Baltic Dirty Tanker Index reached a record 3,737 on 27 March, which compares with around 1,000 for most of last year. Following the ceasefire, it was slightly above 2,000 on Wednesday afternoon in Europe.
During the active strikes in March, war-risk insurance premiums for vessels heading to the Gulf have quadrupled to 1% of ship value for seven days of cover, according to S&P Global.
A return to pre-war levels could take weeks or months, requiring sustained peace and proof of safe transit.
According to Covatariu, in the case of a peace deal, a sustained fall in European consumer prices would still take months, as inventories take a long time to be rebuilt. At the same time, supply remains tight, after more than 40 energy assets across the region have been severely damaged.
Even after a peace deal, repairs could take months or years, keeping supply tight and prices elevated.
Why gas prices may stay high
During the past nearly six weeks, a large part of the global supply of LNG from the Gulf has been either lost or blocked, amid production disruptions and the near standstill of shipments through the strait, all linked to the Iran war.
Qatar’s Ras Laffan, the world’s largest LNG plant, has been damaged. QatarEnergy declared force majeure on some contracts after taking 17% of output offline, with recovery expected to take up to five years.
According to Tillcock, even after the Strait of Hormuz opens and all vessel transit could resume, gas markets could still "face reduced supply compared to pre-war levels due to reduced physical availability from Qatar.”
Europe gets about 8% of its LNG from Qatar and currently has sufficient supply, but competition is tightening as it refills storage.
Around 40% of Europe’s gas comes from LNG, making it vulnerable to global disruptions.
“Europe relies heavily on LNG, which is a global market, meaning that disruptions elsewhere can reduce the volume of LNG available to Europe,” said Tillcock.
Competition with Asia for the remaining supply could push prices higher.
What happens after a peace deal
As expected, the ceasefire cooled benchmarks immediately; Brent and WTI futures for next-month delivery fell more than 14% and 16%, respectively, by Wednesday afternoon in Europe. But this level is still $20 above the pre-war cost of a barrel.
For gas, prices fell from crisis highs, but are expected to remain above pre-war levels.
“The floor is likely higher than pre-crisis because Europe must refill low storage, so prices above €40/MWh are a plausible near-term post-deal scenario”, Covatariu added.
Markets are watching closely how Iran and the US are resolving the conflict and proceeding to reach a peace agreement.
"If a deal is signed, Iran may bring additional volumes back relatively quickly, especially if no additional disruptions on Tehran’s crude infrastructure are recorded until the deal is reached," Covatariu said.
But a lot depends on the details of the peace deal.
If a peace deal leaves uncertainty, prices could stay elevated due to ongoing risks, including shipping and insurance costs, “which is why the conflict’s perceived durability matters as much as the deal itself,” Covatariu concluded.