Gas futures jumped about 60% after strikes closed the Strait of Hormuz, with Dutch TTF rising to roughly €50 per megawatt-hour, underlining how quickly the conflict is reverberating through Europe’s energy markets. Economic sentiment across the EU slipped in March, the European Commission’s preliminary index fell to 96.7 in the EU and 96.6 in the euro area, and consumer confidence hit its weakest level since October 2023. Policymakers from the European Central Bank to national capitals are watching closely because growth forecasts and inflation projections have already been revised.

Sentiment numbers and the immediate picture

March brought a fresh dip in sentiment across the continent. Preliminary data from the European Commission shows the EU economic sentiment index fell by 1.5 points to 96.7. The euro area index slipped by 1.6 points to 96.6. Both readings sit below the long-term average of 100, the Commission said. Employers in retail, services and industry are trimming hiring plans. Consumer confidence dropped sharply. The Commission said consumers grew more pessimistic about their country’s economy and about their household finances. Fewer households now plan major purchases over the next 12 months.

Private-sector activity data paints a similar picture. Eurozone output moved toward contraction in March, touching its weakest level in ten months. That adds to early signs of slowing demand and raises the risk of a growth-inflation mix that policy makers call difficult to manage.

Energy markets: the clear shock

Energy moves are central to the story. Dutch TTF futures, Europe’s gas benchmark, jumped to about €50 per megawatt-hour after strikes by US and Israeli forces on Iran affected shipping, according to market data reported in March. That marked a rise of roughly 60% since the strikes began. The Strait of Hormuz remains a chokepoint. Around one fifth of the world’s oil and close to one fifth of global liquefied natural gas flows pass through it, Euronews reports. That explains why a disruption there ripples through the market so fast.

Inventories were already low at the start of March. Gas stores across Europe were roughly 30% full. Germany reported reserves near 21.6%, one of the continent’s lowest seasonal levels. Oxford Economics warned that if Qatari LNG flows are hit, Asian buyers could outbid Europe for cargoes. That would make it harder for European countries to refill storage before the next winter.

Quantified impacts economists are flagging

Forecasters have put numbers on the hit. Oxford Economics projects oil supply disruption might reach around 4 million barrels per day over the coming quarter. That shortfall, the forecaster said, would be driven more by trade disruption than by permanent production losses.

Alternative shipping lanes can only absorb about one third of the oil normally shipped through Hormuz, making rerouting imperfect.

Mastheads

Oliver Rakau, chief Germany economist at Oxford Economics, estimated the conflict could push headline eurozone inflation up by roughly 0.3 to 0.5 percentage points in 2026. He also suggested the shock could trim eurozone GDP growth by about 0.1 percentage point. The ECB revised its own forecasts on 19 March. It now expects 0.9% economic growth in 2026 and headline inflation at about 2.6% this year.

Policy reactions and political signals

European policy makers have been cautious on direct involvement in the fighting. EU capitals have largely declined to join US and Israeli strikes, treating the conflict as avoidable rather than unavoidable. Still, leaders aren't ignoring the economic fallout. ECB President Christine Lagarde said the bank was watching incoming data closely and would raise rates again if price pressures proved persistent. That stance links market moves to policy decisions: higher energy costs lift inflation and could force central banks to tighten further.

National political statements have echoed economic alarm. Germany’s defence minister warned last week that the conflict was a catastrophe for the world’s economies. At the same time, the United States has moved substantial military assets to the region. US President Donald Trump said he might pursue mediated talks with Iran via Pakistan, while also telling the Financial Times he could "take the oil in Iran" and seize Kharg Island. Those statements have complicated diplomatic calculations in Europe.

Higher energy bills hit household budgets first. Economists point out that when energy costs rise rapidly, households try to cut other spending. The European Commission’s consumer survey shows people are already less ready to make big purchases. That reduces demand for firms. Lower demand then feeds back into hiring plans, which explains why employers in services, retail and industry are pulling back.

Firms face two channels of pressure. Input costs climb when oil and gas prices jump. And demand falls when households tighten their belts. The combination leaves corporate margins squeezed. Some businesses may delay investment or hiring. That means growth could slow further even if inflation remains stubborn.

Trade routes through the Gulf are crucial for energy shipments. Disruption forces shipping companies and energy buyers to reroute cargoes. Rerouting raises transport costs and delivery times. Oxford Economics noted that alternative routes can only handle a fraction of normal flows through Hormuz. That means a material share of shipments may be delayed or rerouted for weeks.

In turn, higher transport and fuel costs feed into producer prices. Those costs get passed onto consumers through higher retail prices, adding persistence to inflationary pressures already evident in the March data.

Beyond economics, the conflict is reshaping political choices. European governments must weigh economic pain against security and diplomatic aims. The fallout is testing the cohesion of transatlantic policy. Some capitals favour firm support for allies in the region. Others fear escalation. The push-and-pull affects defence planning, trade stances and energy policy debates across the EU.

At the same time, leaders face domestic pressures. Falling consumer confidence and weaker hiring intentions create political risk at home. Governments dealing with unpopular price rises may face calls to shield households or to accelerate alternative energy projects, adding short-term budgetary pressures.

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On 19 March the ECB revised its forecasts to 0.9% growth in 2026 and about 2.6% headline inflation, numbers that now frame the bank’s immediate policy choices.

This article was created with AI assistance.