Europe is facing a fresh energy shock just four years after Russia’s unprovoked military invasion of Ukraine in February 2022, unleashing an inflationary trauma across the bloc and pushing euro area inflation above 10% by the end of that year. Since then, the EU has moved, slowly but steadily, through sanctions, voluntary cuts and supply diversification to reduce its dependence on Russian gas and oil. Yet the lessons learnt are still not enough, the European Stability Mechanism warns, because the euro area remains “highly dependent on imported energy” and exposed to “global price swings”.
On 28 February 2026, without any warning, the United States and Israel launched a barrage of air strikes on Iran, killing supreme leader Ali Khamenei and several other Iranian officials and inflicting more than 100 civilian casualties. What was initially presented as a swift action, similar to earlier actions in Venezuela and expected to last only a short period, is now in its sixth week, with no clear end in sight.
The US and Israel claim more than 10,000 targets inside Iran have been hit. In retaliation, Iran has launched hundreds of drones and ballistic missiles at targets in Israel. But the most consequential economic effect is the de facto closure of the Strait of Hormuz, knocking one in five cargoes of the world’s liquefied natural gas and one in four seaborne oil shipments off the market and pushing oil prices well above $100 a barrel. If the war drags on, inflation risks are likely to intensify globally.
Against this backdrop, Rolf Strauch, chief economist at the European Stability Mechanism, argues in a new column that the euro area is facing a shock “similar to 2022, yet distinct in several ways”. Europe, he writes, enters this episode in a better position, “although not immune”, and the current turmoil should not be treated as a passing market disruption. Instead, it “clearly underscores the urgent need to strengthen Europe’s strategic energy autonomy”.
2026 vs 2022
Strauch’s point is not that Europe is reliving 2022, but that it is confronting a similar shock from a stronger starting point. Oil and gas prices have jumped sharply since the military escalation began, yet gas prices still remain below the extremes reached four years ago, moderating the immediate blow even as the broader vulnerability persists.
He notes that the bloc’s dependence on Russian energy has fallen sharply since the invasion of Ukraine, with Russia’s share of EU gas imports dropping from 45% in 2021 to 19% in 2024, while Russian oil imports declined from 27% to 3% over the same period. LNG regasification capacity has risen by 32% since 2022 and wind and solar capacity has expanded by 58% since 2021. In 2024, renewables generated more electricity than gas for the first time.
Households and companies have also adjusted faster than many expected. Strauch writes that they proved “far more agile than many anticipated” by reducing energy demand, switching energy sources and increasing efficiency measures. Energy intensity in the euro area is now 13% lower than in 2021 and about 40% lower than in the US, suggesting that demand has become more elastic and that future price spikes should translate into smaller macroeconomic shocks than before.
Vulnerability remains
Still, Strauch is clear that Europe is “not immune”. Despite the progress since 2022, the bloc remains structurally vulnerable to global price swings because gas continues to set power prices in large parts of Europe, even as renewables account for a growing share of electricity generation. “When LNG prices increase, electricity prices generally follow--and so does inflation”, he reminds.
For energy-intensive industries, the consequences could be severe. Strauch points to sectors such as chemicals and basic metals, where the pain from 2022 “has not fully healed”. Industrial electricity prices in Europe remain between two and three times higher than in the US or China, worsening an already difficult competitiveness picture at a time when US protectionism and Chinese excess supply of manufactured goods are adding to the pressure on European producers. The “medium-term competitiveness challenge”, he warns, “is far from being resolved”.
He also cautions that a more sustained rise in energy prices could trigger employment adjustments. The threat is broader than inflation alone. A prolonged disruption would also weaken global growth and tighten financial conditions, amplifying the drag on the euro area economy.
Growth and inflation risks
The ESM’s model-based scenarios show how damaging a prolonged shock could become. An oil and gas price increase of 100% and 200% respectively from pre-conflict levels would cut euro area GDP by 0.3% in 2026 in the event of a short disruption and by 1.2% by the end of 2027 in a longer disruption scenario, according to the ESM’s calculations. Average annual inflation would rise by 0.5 percentage points in the short-shock case and by 1.4 percentage points if prices remain elevated for longer.
The assumptions behind the longer disruption scenario are severe but not implausible. Oil would remain at $120 a barrel in the second quarter of 2026 and gas prices at €80 per megawatt hour, with both easing only gradually through the second half of the year and into end-2027. On average, oil and gas prices would stay about 60% and 150% above pre-conflict levels in 2026 and 2027 respectively. Those figures reinforce the Strauch’s broader argument that Europe is no longer facing a one-off inflation scare, but a recurring external vulnerability with real consequences for long-term growth.
Less room for fiscal error
For Strauch, “the policy challenge now is twofold”: stabilising the economy amid renewed price turbulence while advancing the structural reforms needed to strengthen Europe’s long-term energy resilience. That means the policy response has to be more disciplined than in the past. He acknowledges that policymakers now have more experience and stronger emergency frameworks, but warns that the fiscal context is far less forgiving than in 2022. Higher interest rates are beginning to bite into public finances and rising defence commitments are narrowing room for manoeuvre.
The ESM notes that while the overall euro area budget balance is almost identical to 2022, the differences between countries are now more pronounced. Strauch is explicit that governments should not rely on inflation to erode debt burdens. Inflation driven by adverse supply shocks undermines competitiveness and purchasing power, while the fiscal gains fade as interest expenditure catches up. Sustainable debt reduction, he argues, must rest on growth-enhancing policies and higher primary surpluses, not on inflation surprises.
Targeted relief, not broad support
In the short term, the ESM argues for temporary and targeted measures rather than blanket support. Strauch writes that the cost-of-living crisis affects less affluent households more because they consume a higher share of their income. Targeted transfers or subsidies can therefore help mitigate the shock more effectively, while still preserving incentives for households and businesses to save energy and improve efficiency.
That marks a deliberate effort to reflect the lessons of the inflation surge after 2022, when higher energy prices, pent-up demand and fiscal support helped drive inflation into double digits and pushed the European Central Bank into the fastest tightening cycle in the history of the euro, with 450 basis points of rate rises between July 2022 and September 2023.
Energy autonomy
For Strauch, the latest shock is not simply another crisis to be managed. It is a warning that Europe must move faster on structural reforms that cut reliance on imported fossil fuels and strengthen economic sovereignty. In his words, the current episode “clearly underscores the urgent need to strengthen Europe’s strategic energy autonomy”.
That, he argues, means using national and EU-level tax measures and reforms to accelerate the green transition, expand and modernise energy infrastructure and strengthen cross-border interconnections, in line with the Draghi and Letta reports. The goal is not only environmental, but economic: to reduce dependency, stabilise electricity prices and tackle one of the structural weaknesses weighing on Europe’s competitiveness.
The euro area may be better prepared than it was four years ago, but the central problem has not gone away. Resilience is not the same as security. Until Europe can protect growth, industry and households from imported energy shocks, every geopolitical flare-up will keep exposing the fragility at the heart of its economic model.
