Europe faces an imminent energy supply crisis as geopolitical tensions in the Middle East escalate, according to Wael Sawan, chief executive of Shell. The closure of the Strait of Hormuz by Iran has trapped approximately one-fifth of the world’s oil and liquefied natural gas supplies in the Gulf, creating a supply squeeze that threatens to ripple westward from Asia within days.
Speaking at an industry conference in Houston, Texas, Sawan outlined a timeline for the crisis to spread across global markets. He stated that South Asia would bear the immediate impact, with disruptions subsequently moving through South-East Asia and North-East Asia before reaching Europe in April. The executive warned that European governments may need to implement demand-side measures, including energy consumption restrictions not implemented since the 2022 energy crisis.
The conflict, now in its fourth week, has already triggered severe market reactions. Oil and gas prices have surged by 40 per cent and 60 per cent respectively over the past four weeks, driven by both supply concerns and Iranian threats to strike vessels transiting the Strait of Hormuz. These price movements have sent financial markets into turmoil, with bankers warning of potential recession risks for the United Kingdom should the energy shock persist.
Asian economies, heavily dependent on Middle Eastern energy supplies, have already begun implementing extraordinary measures. Governments in the region have imposed four-day working weeks, urged citizens to reduce air-conditioning usage, and suspended overseas travel for government officials. The International Energy Agency has called for global demand reductions through remote working encouragement, reduced motorway speed limits, and increased public transport utilisation.
British military sources indicate that the United Kingdom is leading international efforts to reopen the vital Strait of Hormuz. Current planning considers deploying mine-hunting drones from chartered civilian motherships, whilst the United States administration is simultaneously preparing potential military interventions. President Donald Trump has indicated that Vice-President JD Vance will serve as a negotiator with Iran, following Tehran’s refusal to engage with existing Middle East envoys.
The energy industry has acknowledged this situation represents a credible worst-case scenario, though energy security remains more certain than pricing stability. Industry sources note that even during the previous energy crisis following the Russian invasion of Ukraine, Europe maintained physical supply security despite losing significant gas volumes. However, the critical concern centres on pricing; should energy costs remain at elevated levels through summer months, household and business self-rationing may occur as consumers become unable to afford supplies at prevailing prices.
The UK government possesses regulatory powers under the Energy Act to assume control of petrol supplies during emergencies, with such powers previously employed in 2000 during fuel depot blockades. Former government officials suggest that ministers would likely introduce softer demand-management measures first, including speed restrictions and remote-working guidance, before contemplating more aggressive interventions.
Morgan Stanley has warned that the United Kingdom could face recession if energy prices remain elevated and the Bank of England raises interest rates in response. Chief UK economist Bruna Skarica projected a pronounced recession at year-end 2026 if current energy price levels persist whilst borrowing costs increase. Bank of England chief economist Huw Pill acknowledged that monetary policy has inherent limitations in protecting households from energy price shocks.
Food inflation presents an additional concern stemming from the energy crisis. The Institute of Grocery Distribution estimates that food price inflation could reach 8 per cent by June 2026 if oil price disruptions continue, more than double the current rate of 3.6 per cent.
Chancellor Rachel Reeves has signalled that future energy bill support will differ fundamentally from the Conservatives’ response to the Ukraine crisis. Rather than implementing broad, unfunded support packages similar to those that contributed to inflation and mortgage cost increases, the government will target assistance to households most in need. Current planning suggests limiting support to individuals receiving means-tested benefits, as developing a wider means-testing system would require more time than the current crisis allows.
Markets face considerable uncertainty regarding both the duration of the Middle East conflict and the effectiveness of international diplomatic efforts. Sustained supply disruptions extending into summer months could trigger widespread self-rationing driven by affordability constraints rather than physical scarcity, fundamentally altering economic conditions across Europe and beyond.
