Europe's Energy Crisis: Small Response to Persian Gulf Shutdown

Europe faces a significant energy crisis as the Persian Gulf shutdown, impacting a fifth of global oil and seaborne gas, enters its eighth week. ECB President Christine Lagarde warned of a potential shift «from prices to rationing,» with the International Energy Agency calling it the «biggest ever» energy crisis.

The EU has committed only €10 billion to address rising fuel prices, primarily from Berlin and Madrid. Germany's €1.6 billion excise duty cut on fuel, less than 0.05% of GDP, and a €1,000 tax-free bonus scheme (estimated €6–12 billion in lost taxes) are minimal compared to 2022. That year, Germany alone disbursed €15 billion, Italy €13 billion, and France €12 billion.

Some analysts suggest politicians are gambling on the Strait of Hormuz reopening soon, hoping to avoid the worst. Others point to lessons from the 2022 crisis, like Germany's €3.4 billion «Tankrabatt» fuel subsidy, which proved ineffective. Despite this, Germany's Social Democrats are pushing for a similar €1.6 billion scheme in 2026, while other European governments adopt broad subsidies.

The primary reason for Europe's subdued response is depleted fiscal capacity and gas storage at a nine-year low. EU government debt, at 77.5% of GDP pre-pandemic, rose significantly, with France reaching 116% debt by Q4 2025 and Germany at 63.5%. Rising interest rates make maintaining these deficits more expensive. Italy's Prime Minister Giorgia Meloni and Spain's Pedro Sanchez are advocating for suspending EU fiscal rules to exempt crisis response expenditures.