Gulf-Eurasian energy crunch pushes Europe to the edge of an inflationary crisis

Europe faces an escalating energy crisis due to conflicts in both the Gulf and Eurasia regions, putting the continent on the brink of an inflationary crisis. Conflicts in the Eastern Mediterranean, Red Sea, Straits of Hormuz, Black Sea, and Caspian Sea have made it clear that Europe is unable to secure critical energy value chains.

The Houthi forces' rapid advances along Yemen's southwestern Red Sea coast have disrupted tanker and LNG shipping lanes, with war-risk insurance premiums surging and vessels diverting around the Cape of Good Hope, adding 10-14 days to voyages and raising costs. The closure of the Strait of Hormuz earlier this year led to a 17-19 million barrels per day reduction in global markets, forcing Europe to rely more on Atlantic Basin and Caspian supply.

Saudi Arabia has attempted to mitigate the shock by diverting crude through its East-West Pipeline to the Yanbu export terminal on the Red Sea, but a drone attack on a pumping station on September 11 closed the East-West line, leaving its reopening uncertain. Kazakhstan, a potential diversification option for Europe's oil balance, faces challenges as its main export artery, the CPC pipeline, delivers crude to Russia's Black Sea port of Novorossiysk, which is vulnerable to Ukrainian attacks.

The Caspian route, while an alternative, is also not safe, as a Ukrainian drone strike on an Iranian vessel in the Caspian in July proved that attacks are possible and can happen again.