For America’s European allies, the war in Iran is now now turning into an energy shock. While few can really predict the conflict’s duration and intensity, the European Union’s economic growth is pointing downward, inflation upward and competition for energy is intensifying. Therefore, the EU’s promise of a competitiveness boost is sounding hollow.
The EU’s leaders are turning to Algeria to secure alternative sources and announcing multi-billion euro consumer support packages at home. Europe’s economy is weak, with the finances of core countries such as France fragile. While the EU is headed into springtime, its gas stores have been depleted by a harsh winter and a less stringent policy on keeping them filled. The longer the Iran conflict lasts, the higher the bill for pricier energy imports into Europe, which a week ago was estimated at €6 billion ($7 billion) — and the more inflation and rate expectations will depress asset prices and consumers. Even in a very optimistic scenario whereby the fighting stops within days, there will still be a prolonged disruption to LNG flows. Europe will find itself facing stiff competition from countries like Japan, South Korea and China for available supplies.
