Hormuz Costs Squeeze Europe’s Energy

The Strait of Hormuz is still open on the map. Ships can, in theory, pass through the narrow stretch of water that carries roughly a fifth of the world's oil and LNG trade. But that is not the same as saying energy is moving.

The decision now sits less with governments than with insurers, shipowners and banks. They are the ones deciding whether a cargo is worth the risk, whether a crew should be sent, and whether finance should be provided. For the moment, their answer is doing what no formal blockade has done: cutting Europe off from Gulf energy.

A commercially dead sea lane

US Central Command struck Iranian targets on 7 July after attacks on three commercial vessels. Brent crude rose to $78.02 (CNBC). Traffic through Hormuz then almost collapsed, even though the strait was never formally closed (Reuters, LMA).

The problem is the cost of taking the voyage. The Lloyd's Market Association, the trade body for Lloyd's of London underwriters, has said war insurance and liability cover are still available. That includes protection against damage, pollution and injury claims. But available does not mean usable. Brokers now describe war-risk cover at 2%-6% of a vessel's hull value, up from about 0.2% before the conflict (GCaptain). Some premiums have reached 7.5%, while some shipowners are refusing to send crews at any price (WirtschaftsWoche).

So the cover exists, but the ships do not sail. A sea lane can be legally open and commercially dead at the same time.

That is what makes the problem awkward for Europe. The Commission can monitor supply. Member states can release emergency reserves. But insurers price the risk, shipowners decide whether to move, and banks decide whether a cargo is too exposed to war-risk or sanctions trouble. No EU decision caused the freeze. No EU decision can simply undo it.

Prices arrive before shortages

Europe feels this first through price, not through empty terminals. TTF, the Dutch-based Title Transfer Facility that acts as Europe's benchmark gas price, climbed above €50/MWh and reached roughly €54-56/MWh as concern grew over Hormuz freight costs and LNG supply (Investing).

That matters because TTF is not just a Dutch number. It helps set the price paid by utilities and industrial buyers across the continent, from Helsinki to Lisbon. Germany's direct exposure to Gulf crude may be limited, but its factories still pay for the risk through gas prices linked to the same benchmark.

The pressure then shows up differently from country to country. Italy gives the clearest example. Edison, one of its largest energy companies, lost 21 Qatari LNG cargoes to force majeure and had replaced 14 by late June, mostly with US supplies (Quotidiano.net). The system coped, but at a higher cost and with less room for the next shock.

Spain shows the other constraint: infrastructure. It has roughly one-third of the EU's LNG port storage capacity (infoLibre). But the gas link through the Pyrenees into France is so limited that the head of Spain's grid operator described the peninsula as "more island than Ireland" in energy terms (Infobae). Spain can hold gas. Getting it north is the harder part.

Stockpiles answer shortage, not cost

EU law requires member states to hold emergency oil reserves equal to at least 90 days of net imports (Directive 2009/119/EC). The Commission's Energy Union Task Force said on 13 July that winter gas supply is not at immediate risk (European Commission). That answers one question: whether the tanks run dry. It does not answer what Europeans will pay to keep them full.

The IEA's chief put it plainly, telling Euronews that Europe would make "a big mistake" to assume it is insulated (Euronews). Reserves can prevent a physical shortage. They do not cap prices, reduce freight costs or persuade insurers to underwrite voyages that look too dangerous.

That is why even countries with little direct dependence on Hormuz still pay for what happens there. Once cargoes are rerouted or cancelled, scarcity works its way through every connected market. Ireland knows that kind of exposure well: being physically removed from the pinch point does not mean being outside the price system.

Europe's Hormuz problem now runs through a commercial risk chain: insurers in London, shipowners in Europe's maritime centres, and banks financing cargoes. Brussels can coordinate, reassure and buy time. Whether energy actually moves depends on private boardrooms deciding the risk is worth taking.