The European Union has warned member countries that if the Iran conflict continues, energy markets will face a prolonged supply shock that would force cuts to fuel consumption, EU diplomats told Reuters.
In a closed-door meeting with EU countries’ ambassadors, the European Commission said it was considering two main scenarios, diplomats with knowledge of the talks said.
In a scenario where the ceasefire agreed between the US and Iran holds, and the US blockade of the strait is lifted, oil and gas flows would recover in a few months, and prices should decline, the Commission said.
Diesel and jet fuel prices would ease later, by the end of summer, while the global market for LNG would remain tightened until 2030, due to damage to infrastructure in Qatar, it added.
But if tensions continue, energy markets would face a prolonged supply shock and extreme price spikes, with ripple effects across industries’ supply chains. Continued oil supply disruption would increasingly force “demand destruction” — meaning reduced fuel use, the Commission said.
In this scenario, Europe could struggle to fill its gas storage ahead of winter. Localised shortages of jet fuel are also possible, the Commission said, according to the diplomats.
