Europe's benchmark wholesale gas price, the Dutch TTF front-month contract, traded above €79 per megawatt-hour on Wednesday morning, reaching its highest level since early 2023. The surge reflects intensifying conflict between the US and Iran, which has raised concerns about LNG shipments through the Strait of Hormuz—a waterway that normally carries about 20% of global LNG trade. Its effective closure has blocked those shipments for several months, adding a growing risk premium to European gas prices.
Since the start of the year, the TTF contract has swung between roughly €26.50 and €79 per MWh. The crisis has also distorted the seasonal price curve: summer gas is typically cheaper than winter gas, allowing traders to buy, store, and sell later at a profit. But with near-term prices elevated and markets expecting supply conditions to improve later in the year, the financial incentive to refill storage has weakened in several European countries.
Storage levels and supply risks
European storage levels are unusually low, though the continent is not on the brink of running out. According to Oxford Economics, EU gas consumption remains about 15–20% below its 2021 level, which allows the bloc to operate with lower inventories. However, this increases reliance on LNG imports during winter, making Europe more exposed to global market volatility.
Adding to the pressure, Europe faces a prolonged reduction in supplies from Qatar. Strikes in March severely damaged two LNG production units at the Ras Laffan complex, removing 17 billion cubic metres of annual capacity—roughly 17% of Qatar's LNG export capacity, according to the Institute for Energy Economics and Financial Analysis. Repairs are expected to take three to five years, the International Energy Agency (IEA) estimates.
If Middle Eastern exports recover only gradually, Goldman Sachs analysts project that the December 2026 TTF price may need to rise above €100 per MWh to attract sufficient LNG to Europe, compared with their base case of €50 per MWh.
Inflation and interest rates
Higher energy costs are feeding into inflation concerns. Markets are almost fully pricing in a quarter-point interest-rate increase from the European Central Bank on Thursday, which would take its deposit rate from 2.25% to 2.5%. Eurozone inflation reached 3.3% in August, largely driven by energy prices, even as underlying price pressures eased.
The bond market has also reacted: investors have sold European government bonds on fears that expensive energy will keep inflation and interest rates higher for longer. The resulting rise in yields increases borrowing costs for governments as they refinance their debt.
IEA calls for strategic reserves
In response to the sustained pressure on gas prices, the IEA has published its latest recommendations for governments worldwide, including Europe. In its Gas Reserve Mechanisms and Flexibility Options report, released Wednesday, the agency argues that governments should rethink how they prepare for shortages—using strategic reserves, flexible buying rules, and international cooperation instead of relying solely on rigid storage targets and competition for LNG cargoes.
The report highlights that Europe has lost some of its flexibility. After sharply reducing its dependence on Russian pipeline gas following the Ukraine war in 2022, the bloc now relies more heavily on globally traded LNG. Even though Europe has added more than 50 billion cubic metres a year of LNG import capacity since the 2022–23 crisis, terminals do not guarantee supplies: Europe must still attract and pay for the cargoes.
Current EU rules require member states to fill gas storage to 90% by 1 November, though they can deviate when market conditions are unfavourable. The IEA suggests that strategic reserves—gas held outside the commercial market for release only in an emergency—could provide complementary, reliable support in a crisis.
Several EU countries, including Italy, Poland, and Spain, already hold national strategic gas reserves. According to the IEA, an estimated 12 billion cubic metres of gas was held as strategic reserves across the EU in 2025, representing around 3.5% of annual consumption and 12% of working storage capacity. The agency says governments could expand these arrangements and explore coordination at the EU or international level.
Many of the IEA's recommendations align with measures in AccelerateEU, the European Commission's strategy to cut energy costs and reduce dependence on volatile fossil fuel markets. Both call for coordinated gas purchases, more flexible storage targets, demand reduction, and protection for households and businesses from high prices.
The IEA also suggests that Europe could consider storing between 10 and 15 billion cubic metres of gas in Ukraine once the war ends and the sites are safe. Other ideas include paying to hold emergency gas in another country, jointly securing rights to buy extra LNG cargoes during shortages, using older LNG ships as temporary storage, and releasing some gas normally kept in underground storage sites.
These proposals require further study. Governments would need to decide who owns the gas, when it can be released, and who pays for it. Holding emergency supplies carries costs, but the IEA warns that being unprepared for a crisis could prove far more expensive.
