European Energy Crisis: Rising Gas Prices and Economic Risks

European natural gas prices have surged 70% in March 2026, driven by supply disruptions following the escalation of conflict in Iran. The benchmark Dutch TTF natural gas price rose from €38 per megawatt-hour to €54 month-to-date, marking the strongest monthly increase for European gas prices since September 2021.

The price spike has immediate economic implications for the European Union. In the first ten days following the conflict’s escalation, the increase in fossil fuel prices cost Europeans an estimated €2.5 billion in additional import bills.

Critical Storage Levels and Regional Vulnerabilities

Europe enters this period of volatility with fragile energy reserves. As of March 24, 2026, underground gas storage across the continent stood at 28.4%, or 325 terawatt-hours. This level is 5 percentage points lower than on the same date in the previous year and remains well below the five-year seasonal average.

The distribution of gas vulnerability varies significantly by country. The Netherlands is currently the most critical case, with storage falling to 6.0%, or 9 TWh, which is less than one-third of the level recorded a year ago and below the historical minimum for this period.

Other major economies are also heavily exposed:

• Germany’s storage facilities are 22.3% full, a decrease of nearly 7 percentage points year-on-year.
• France’s storage levels are similarly positioned at 22.1%.

In contrast, the Iberian Peninsula shows significantly higher resilience. Portugal’s tanks are 85.3% full, and Spain’s are at 55.5%. This stability is attributed to a greater buildout of renewables, lower gas dependency in their electricity mix, and more robust LNG import infrastructure.

Impact on Electricity and Inflation

The surge in gas prices has led to a more than 50% increase in the cost of gas-fired power across Europe since February 28, 2026. This rise adds twice as much to electricity costs as the cost of carbon under the EU Emissions Trading Scheme (ETS).

The degree of exposure to these costs depends on national energy mixes. In Italy, gas influenced electricity prices in 89% of hours so far in 2026. In Spain, gas influenced prices in only 15% of hours, keeping average power prices below the cost of gas-fired power.

The European Central Bank (ECB) is monitoring the potential for these energy shocks to trigger broader economic instability. ECB President Christine Lagarde stated on March 25, 2026, that while monetary policy cannot lower energy prices, the bank must identify when higher costs risk spilling over into broad-based inflation through indirect effects or second-round effects involving wages and inflation expectations.

Our strategy sets out three principles that will guide us. First, it requires us to assess the nature, size and persistence of the shock before taking decisions on policy.

Christine Lagarde, President of the ECB

The current crisis has revived fears of stagflation and a repeat of the 2022 energy crisis, with the supply shock being described as structural rather than transitory.