Europe’s Gas Crisis Deepens as Hormuz LNG Crunch Drives Prices Higher

European natural gas prices have surged significantly since the conflict in Iran blocked a fifth of the world's liquefied natural gas supply in the Strait of Hormuz. The soaring prices are straining governments, driving up energy bills for households, and increasing costs for industry. The recent spike in natural gas, gasoline, and diesel prices is contributing to inflation.

The European Central Bank has raised key interest rates twice since June, with the possibility of more increases, despite acknowledging the highly uncertain outlook. The Middle East's LNG crunch is primarily due to the lack of Qatari LNG cargoes on the market, as they cannot navigate the Strait of Hormuz as easily as oil shipments.

European gas prices have reflected the tight global gas market since early March, with most of Qatar's LNG supply still offline. Some Qatari and UAE cargoes have managed to pass through the Strait, but volumes are insufficient to alleviate the global LNG imbalance. Despite crude oil cargoes flowing through the Strait daily, LNG cargoes have struggled due to the difficulty of reload transfers.

As a result, European gas storage levels are at a historical low, with only 71% of sites filled as of September 28, compared to an average of 86% in recent years. Major economies, including Germany, have even lower-than-average gas storage, raising concerns about supply security for the upcoming colder winter. Despite diversification efforts, the Hormuz crisis has made supply more expensive, leading to a hefty price for securing prompt LNG supply.

While policymakers assure Europe is not facing immediate gas shortages, they warn that high prices are expected to persist until the crisis is resolved.