Source: Zhou Ziheng

Written by: Bian Gui Zhang Hu

Direct Impact of the Closure of the Strait of Hormuz

After the war in Iran entered a complex stage in 2026, its effects quickly extended from the region to the core of the global economy. The Strait of Hormuz, as the most critical throat for global oil transportation, sees about 100 cargo ships passing through each day, of which tankers and liquefied gas carriers account for 60% to 70%. According to data from the International Energy Agency and the U.S. Energy Information Administration, the strait handles about 20% of the world's oil liquid consumption and approximately 25% of maritime oil trade, with pre-war production in the Gulf region at around 27 million barrels per day, constituting a core part of the global daily demand of 104 to 106 million barrels.

After the ceasefire agreement was announced, shipping in the strait remained closed, with at least 800 vessels stranded in the Arabian Gulf. The International Maritime Organization warned that imposing fees on transiting vessels would set a dangerous precedent and threaten the global maritime trade system. Europe clearly rejected such "pirate behavior," viewing it as a violation of the right of innocent passage as stipulated in the 1982 United Nations Convention on the Law of the Sea. With approximately 137 ships passing daily, if a transit fee of $2 million were imposed, annual revenue could reach about $94 billion, equivalent to a quarter of Iran's GDP, but the costs would ultimately be borne by global consumers.

Oil supply disruptions intensified. Data from Kpler and Vortexa revealed that oil exports from Gulf countries dropped by 61% to 71% in March. Iraq faced the largest export decline, while Kuwait, Qatar, the UAE, and Bahrain also experienced significant declines, with Saudi Arabia and the UAE being relatively less affected due to having some alternative export channels. Global oil production fell by about 43% in March, to 15.3 million barrels per day. The International Energy Agency's report indicated that the supply disruption's impact on the global economy exceeded pre-war expectations, with export declines directly driving up energy prices.

Vulnerability of Europe's Energy Import Structure

The European continent has limited domestic energy resources and high extraction costs, relying heavily on imports for a long time. The EU's energy product imports in 2025 are projected to be valued at €336.7 billion, equivalent to 723.3 billion tons. Oil imports dominate, with the share from the United States rising to 15.1%, Norway to 14.4%, Kazakhstan to 12.7%, and the Middle East sources accounting for about 13%, primarily from Saudi Arabia and Iraq. The import volume of liquefied natural gas is expected to grow by 24.4% year on year by 2025, with U.S. supplies accounting for 56%. Since Russia's invasion of Ukraine, the EU has drastically reduced its imports of Russian natural gas from 150 billion cubic meters in 2021 to 41 billion cubic meters by 2025, while the share of Russian crude oil imports fell from 27% to 3%.

However, the closure of the Strait of Hormuz has disrupted the balance of diversification efforts. The EU was forced to increase imports of liquefied natural gas from Russia in the first quarter to address shortages in Middle Eastern supplies. This has exposed the structural vulnerabilities of European energy security: while being reliant on imports, there is a lack of sufficient buffering capacity to cope with multiple geopolitical shocks. Over the past two decades, despite accelerating the deployment of renewable energy, particularly solar and wind projects in Germany, Spain, and Nordic countries, there is still no immediate alternative to fossil fuels. Spain has demonstrated relatively robust performance in energy price control due to large-scale renewable energy investments, with an economic growth rate exceeding 2%, while countries like Italy are facing natural gas shortages due to the shutdown of Qatar's Ras Laffan gas field, prompting the Italian Prime Minister to visit the Gulf region seeking alternative supplies.

Energy prices have surged by 40% to 70%, far exceeding economic tolerance. Analysis by Germany's IfW institute indicates this impact directly affects energy-intensive industries such as automotive, chemicals, and aluminum. The EU's energy and housing commissioner has called for increased public transit usage and energy-saving driving, but the short-term effects are limited.

Analysis of Economic Damage to Major European Countries

Germany's economic recovery process is hindered. The pre-war GDP growth forecast for Germany has been revised down from 1.2% to 0.6%, with the Middle Eastern conflict further intensifying the decline in industrial demand. The impact of energy prices is comparable to that of the COVID-19 pandemic or the Ukraine war; although expansionary fiscal policies have alleviated some of the slowdown, they cannot fully offset the blow to manufacturing. The rise in gasoline prices at Berlin gas stations highlights the pressures on people's livelihoods.

As one of the most affected industrialized countries in Northwestern Europe, the UK's inflation rate may rise from 2.5% to 4%. The Organisation for Economic Co-operation and Development has revised the 2026 UK economic growth forecast down from 1.1% to 0.7%. The fiscal year budget deficit is about £125.9 billion, with borrowing needs expected to reach £250 billion for 2026-2027. High energy costs restrict the Bank of England's plans for rate cuts to stimulate investment, posing direct negative effects on consumers and mortgage holders.

France's economic growth is expected to slow to 0.8% by 2026, below pre-war forecasts. The budget deficit exceeds 5.4%, and the debt level exceeds 112%. Gasoline prices are nearing €3 per liter, with consumers bearing most of the costs, threatening the purchasing power of the middle class. Analysis by BNP Paribas suggests that the inflation environment from this new energy shock is lower than in 2022, with growth expected to slow, but it will still hinder overall recovery.

The situations in Italy and Greece differ. Italy relies 30% of its natural gas consumption on blocked gas fields, with economic growth at only 0.4%. Greece and Portugal, relying on tourism, services, and agricultural recovery, have relatively buffered the rising food price pressure. Norway, as a major oil and gas supplier, benefits from high energy prices and the strait disruption, maintaining a high standard of living. Rotterdam Port in the Netherlands, as the largest port in Europe, is affected by global trade fluctuations, but maintains a high credit rating due to its strong trade relations with the United States. Ireland, as a hub for tech investment, exhibits robust economic stability.

Inflation Pressure and Recovery Prospects

Data from the EU Statistical Office shows that economic growth in the EU for the fourth quarter of 2025 is about 0.3%, and for the Eurozone as a whole, 0.4%. Based on an average growth rate of 1.5%, the GDP of the 27 member states is expected to reach €22.5 trillion by the end of 2026. However, the aftershocks of the war make Europe the weakest region in terms of economic growth among major industrialized countries, with overall growth expected to be only 0.6% to 0.8%, with significant differences among countries.

Rising energy costs are the main reason. Despite being the world's third-largest economy, Europe has limited production capacity compared to China's daily production of over 4 million barrels of oil. Spain effectively stabilizes prices through wind and solar projects, while countries like Norway and the Netherlands mitigate the impact through trade and port advantages. Countries with high energy dependency, like the UK and Germany, face greater challenges.

Analysis by the International Monetary Fund and the OECD indicates that this shock transmits through energy prices, supply chains, and financial markets, with significant regional variations. Compared to the Ukraine war, Europe is relatively better prepared for this crisis, but the vulnerability of global market volatility remains evident. Although inflation is slowing, the continuous rise in energy prices still limits investment and consumption.

Geopolitical and Long-term Energy Security Challenges

The Iran war highlights the geopolitical vulnerabilities of the European economic model. Agreements between the U.S. and Iran may further undermine Europe's recovery efforts from years of recession. European countries are concerned about Washington's restructuring in the Middle East but have not fully considered European interests. Tensions within NATO are escalating, with some countries banning US aircraft from using their bases, and trade wars and energy shocks are widening transatlantic divides.

In the long term, Europe needs to accelerate its energy transition. Increasing domestic renewable energy deployment, diversifying import channels, and enhancing strategic reserves are key. The European Commission predicts that achieving the goal of fully eliminating dependence on Russian energy by 2027 faces new challenges. The disruption of Middle Eastern supplies prompts Europe to reassess its energy security independence, balancing economic decisions in a divided world.

Europe's Response Strategies and International Impact

In facing the crisis, the EU calls for coordinated energy storage operations, responding to the International Energy Agency's recommendations, and promoting collective policy choices. The renewable energy experiences of Spain and Nordic countries provide references, while Norway's benefit from high energy prices reminds of the importance of diversification. Although the UK has strong independent response capabilities post-Brexit, it is more directly affected by the global energy market.

On a global level, this incident reshapes energy flow patterns. Asian markets bear most of the oil flow from Hormuz, but Europe's dim economic recovery prospects as a major importer will drag down global growth. Pipeline alternatives are limited; Saudi Arabia and the UAE can only divert part of their exports, unable to fully compensate for the strait's disruption. Strategic oil reserves provide short-term buffering, but Europe's economy, reliant on imports for the long term, urgently needs structural reform.

The Iran war and energy shock are not just short-term supply crises but also a systemic exposure of Europe's economic vulnerabilities. Against a backdrop of escalating geopolitical uncertainty, Europe must achieve a balance between energy security and economic growth through strengthened internal coordination, acceleration of green transitions, and diversified diplomacy. Only by doing so can it rebuild economic resilience in a turbulent world.

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