“An energy shock from the war in the Middle East is set to deliver a blow to Europe's economy, in a bitter twist for a region that had been hoping to accelerate growth this year after a long stretch of stagnation that angered voters across the continent.
Policymakers are scrambling to provide relief, but their options are more limited than during events in Ukraine four years ago. Government debt and borrowing costs were lower then, and European households and businesses had money from pandemic stimulus programs.
Today, borrowing costs are surging across the continent, and government debt in the U.K. and France is at or near the highest share of GDP in at least six decades.
"We don't have any more money," Bank of France Governor Francois Villeroy de Galhau told broadcaster RTL on Wednesday.
Already, the rise in oil and gas prices during the first 10 days of the conflict cost European taxpayers an additional three billion euros, equivalent to about $3.4 billion, in fossil-fuel imports, said European Commission President Ursula von der Leyen.
"The first tangible effect we are seeing is on the logistics side: Transport costs have risen," said Gerhard Freitag, a plant manager for Claas, a German manufacturer of agricultural machinery.
The bigger concern, said Claas CEO Jan-Hendrik Mohr, is the increasing pressure on farmers. Rising input costs, from diesel to fertilizer are hitting tight margins.
"This squeeze on farm profitability could drive food prices higher," Mohr said.
Swiss chocolate company Lindt last week lowered its guidance for this year, in part because of the conflict. Germany's Volkswagen said the war adds to geopolitical risks and could hit lucrative sales of its luxury brands such as Porsche and Audi.
The conflict in Iran is only the latest blow President Trump's policies have delivered to Europe's economy. Last year, his tariffs curtailed access to Europe's biggest export market and caused a rush of imports from China that were bouncing off the U.S. tariff wall.
With economic growth running at about 1%, the oil price hitting $125 or higher could tip Europe into recession, said Neil Shearing, chief economist at Capital Economics in London.
The U.K., which is a net importer of food and energy, could be among the hardest hit, according to an analysis by Goldman Sachs.
Investors previously priced in a series of interest-rate cuts by the Bank of England. Those are now likely pushed to the back burner, and bets by traders suggest they now see a two-thirds chance the central bank will instead raise rates this year if soaring energy prices spur further wage hikes.
After the events in Ukraine broke out in 2022, France rolled out energy support measures worth about 105 billion euros during 2022 and 2023, according to the Organization for Economic Cooperation and Development.
With public debt reaching a record 3.48 trillion euros in the third quarter of 2025 and a budget deficit estimated at 5.4% of GDP, such moves are no longer likely.” [1]
Western Europeans are sitting by a huge lake of cheap Russian energy. Why don’t they take it? They took a bite of Ukraine, trying to digest it, not succeeding and not letting it to go. Is Hormuz killing this politics?
Is Hormuz Killing This Politics?
New Vulnerability: By replacing Russian pipeline gas with imported LNG, Europe swapped one dependency for another.
Price Spikes: Conflicts in the Middle East, particularly around the Strait of Hormuz, have caused energy prices to surge, making the energy transition more expensive.
Long-Term Strategy: Despite these price shocks, the EU is committed to long-term energy sovereignty, including accelerated renewable energy deployment and ending all Russian gas imports by 2027.
Some industries have closed due to high LNG costs, but the continent has largely avoided a catastrophic energy shortage before Hormuz events. What about now?
1. World News: Europe Gets Energy Shock It Can't Afford to Absorb. Fairless, Tom; Kim Mackrael. Wall Street Journal, Eastern edition; New York, N.Y.. 17 Mar 2026: A5.
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