By Kate Abnett BRUSSELS, April 15 (Reuters) - The European Union warned member countries on Wednesday that if the Iran conflict continues, energy markets will face a prolonged supply shock that would
EU Warns of Prolonged Energy Shock, Forced Cuts if Iran Conflict Persists
Impact of Iran Conflict on European Energy Markets
By Kate Abnett
BRUSSELS, April 15 (Reuters) - The European Union warned member countries on Wednesday 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.
Global Energy Supply Disruptions
Global energy supplies are reeling from the war's effective closure of the Strait of Hormuz, usually a transit route for 20% of the world's oil and liquefied natural gas (LNG).
Europe has not yet faced supply shortages, but is grappling with soaring oil and gas prices and airports have warned the first jet fuel shortages could hit within weeks.
European Commission's Response and Scenarios
In a closed-door meeting with EU countries' ambassadors on Wednesday, the European Commission said it was considering two main scenarios, diplomats with knowledge of the talks said.
A Commission spokesperson declined to comment.
Scenario 1: Ceasefire and Recovery
In a scenario where the ceasefire agreed between the U.S. and Iran holds, and the U.S. blockade of the strait is lifted, oil and gas flows would recover in a few months and prices should decline, the Commission said.
Short-Term and Long-Term Market Effects
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.
Scenario 2: Prolonged Tensions and Supply Shock
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.
Potential Fuel Shortages and Demand Destruction
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.
Europe's Vulnerability and Policy Response
Europe's reliance on oil and gas imports has left it exposed to spiralling global prices - even though its top suppliers are the U.S., Norway and other producers outside the Middle East.
Draft Proposals to Offset Energy Fallout
The Commission is drafting proposals to attempt to offset the energy fallout. A draft, previously reported by Reuters, shows plans to cut electricity taxes and seek to scale up clean technologies faster, to slash Europe's dependence on fossil fuels and protect the bloc from future oil and gas shocks.
(Reporting by Kate Abnett; Editing by Alexander Smith)
