Energy shock: why oil and gas costs have actually increased less than anticipated

27 July 2026

By Lea Demuth, Ana-Simona Manu and Arthur Stalla-Bourdillon

Why have energy costs increased less throughout the Iran war than after Russia’s intrusion of Ukraine? This ECB Blog post compares the 2 episodes and describes the function of market buffers, need and competitors for LNG deliveries.

The wars in Ukraine and Iran have actually both resulted in substantial energy shocks and, as an outcome, increasing energy rates. The 2 shocks vary considerably in terms of both scale and market effect.^[1] Most significantly, although the interruptions to international oil and gas products have actually been significantly bigger throughout the Iran dispute, the resulting rate boosts have actually up until now been relatively soft. To comprehend why, this post takes a look at the characteristics of energy product markets.

Cycling The Iran war has actually interrupted oil supply more seriously

Military strikes in between the United States, Israel and Iran in late February 2026 caused the closure of the Strait of Hormuz. This disrupted the transit of around 20 million barrels daily (mb/d), comparable to one-fifth of international oil supply. Saudi and Emirati pipeline networks have actually partly alleviated the disturbance, the dispute has actually nonetheless resulted in a typical supply loss of around 14 mb/d so far, representing 14% of worldwide oil supply. By contrast, the war in Ukraine lowered oil supply by just around 1 mb/d, or 1% of worldwide output, because the majority of Russia’s 10 mb/d of oil production continued to reach world markets in spite of the sanctions put in location (Chart 1, panel a).

Chart 1

Size of the energy shock and oil futures curve response

a) Size of the shock

b) Changes in oil futures costs and agreement projections at various horizons

(oil: mbd; gas: bcm/m)

(percent)

The scale of the interruption is extraordinary. The oil cost reaction in 2026 has actually been remarkably restrained. This might be the outcome of hopes that the supply scarcity will be momentary. By historic requirements, a disturbance of this magnitude would usually rise oil rates by as much as 105% (Caldara et al. 2019).

And yet, by early June, oil rates stood at just around USD 94 per barrel, 29% above their pre-conflict level, after pulling away from a peak boost of more than 50%. Rates increased by around 30% at their peak following Russia’s intrusion of Ukraine– a broadly comparable action regardless of a far smaller sized supply shock. That boost was likewise temporary, with rates stabilising at lower levels by August 2022.

The oil futures market informs a comparable story, with a smaller sized upward shift in the futures curve relative to the size of the shock throughout the Iran war. Another striking function of this episode is that cost boosts have actually been focused in short-dated agreements. As an outcome, the curve moved into steeper backwardation: compared to 2022, near-term oil costs increased a lot more relative to longer-term rates in 2026 (Chart 1, panel b). This recommends that financiers put a greater worth on instant oil schedule in 2026 than they performed in 2022, indicating raised near-term benefit threats to oil costs related to the Iran war.

Cycling Oil markets were much better prepared this time round

Together with expectations of a speedy resolution to the dispute, oil costs have actually likewise stayed fairly included thanks to a market that was much better placed to soak up supply disturbances than it remained in 2022.

• The oil market went into the dispute with an oil supply surplus of around 2.5 mb/d. To name a few elements, this was underpinned by record United States shale output and by China’s shift to electrical lorries.^[2] This contrasts dramatically with the conditions before the Ukraine war, when oil markets were currently tight and the supply deficit stood at around 1 mb/d.
• Second, stocks were substantially greater than in 2022. In addition to bigger OECD stocks, China’s considerable stockpiling supplied an additional buffer. Chinese stocks are approximated to have actually increased from 92 days of import cover in 2023 to around 115 days by early 2026. This assisted to cushion the effect of supply losses.
• Third, lower need, especially in Asia, assisted consist of rate pressures in 2026. Secret aspects here were weaker Chinese petrochemical usage and lower need for jet fuel in the Middle East. In reaction to these advancements, the International Energy Agency (IEA) modified its worldwide oil need projection for the 2nd quarter of 2026 down by 3 mb/d relative to its January outlook. It is presently forecasting a year-on-year decrease in need of around 2%. This contraction is substantially bigger than the one observed following the Ukraine war, when oil need in the 2nd quarter of 2022 was just 0.6 mb/d listed below the IEA’s pre-war projection.^[3]
• Policymakers have actually responded more powerfully. The IEA’s collaborated tactical release of oil stocks of 400 million barrels far went beyond the 182 million barrels launched in 2022.

Together, these aspects assist discuss why a much bigger supply shock has actually equated into a relatively soft boost in oil rates.

Cycling Comparable gas disturbances, smaller sized cost boosts

The contrast in between the 2 crises can likewise be seen on the gas markets. While both disputes led to supply losses totaling up to around 9% of combined Asian and European gas need, they varied in regards to the kind of gas impacted and the areas most straight exposed.

The war in Iran has actually interrupted the international LNG market. The Strait of Hormuz represent 20% of international LNG supply, comparable to around 110 billion cubic metres (bcm) yearly (Chart 1, panel a). By contrast, the war in Ukraine mainly impacted pipeline gas, the effect of which was extremely focused in Europe, with Russian exports to the area decreasing by 126 bcm in 2022.

As in the oil markets, the response of gas costs throughout the Iran war has actually been especially more soft than historic experience would recommend. By early June, Title Transfer Facility(TTF) gas costs, the most typical European gas criteria, had actually increased by 53% to EUR49 per megawatt-hour (MWh). Approximates based on historic information would recommend a boost of around 81%, broadly in line with the 79% cost increase observed throughout the Ukraine war.

Provided the comparable size of the 2 supply shocks, this indicate a more controlled market response in 2026. The 2 episodes likewise vary in regards to their hidden financial motorists. Adolfsen et al. (2026) recommend that the current boost in TTF gas rates mostly shows preventive need shocks. To put it simply, cost pressures increased owing to issues over possible disturbances instead of real supply losses, as Europe’s direct reliance on Middle Eastern LNG stays minimal (Chart 2, panel a).

On the other hand, throughout the 2022 energy crisis, while the preliminary boost in TTF gas rates showed preventive need, it was consequently magnified by physical supply interruptions, as decreasing Russian pipeline streams caused extreme market tightness. The gas futures curve likewise suggested a more soft rate response following the current dispute. One and two-year futures increased by 12% and 2% throughout the Iran war, compared with 38% and 74% throughout the Ukraine dispute (Chart 2, panel b).

Chart 2

Gas cost decay and gas futures curve response

a) Gas rate decay

b) Changes in gas futures rates and agreement projections at various horizons

(percent)

(percent)

Cycling Weaker competitors for LNG deliveries included gas costs

Numerous aspects can assist discuss why gas rates have actually responded more reasonably in 2026 than throughout the Ukraine energy crisis.

The pre-shock conditions were beneficial. In early 2026, TTF gas rates varied in between EUR28 and EUR40 per MWh. This showed well-supplied markets following Europe’s diversity far from Russian gas and the growth of LNG import capability. By contrast, European gas markets were currently under tension before Russia’s intrusion in February 2022, with TTF gas costs standing in between EUR80 and EUR90 per MWh and a heavy dependence on Russian pipeline gas. Storage levels were low and broadly equivalent in both episodes (Chart 3, panel a).

Second, competitors with Asia for LNG deliveries was weaker in 2026. The type of interruption– LNG or pipeline– does not in itself identify the rate action, market characteristics depend seriously on the impacted area’s capability to protect replacement products rapidly. In both crises, the volumes formerly provided under long-lasting agreements needed to be changed through area LNG purchases. In 2022, Europe bid strongly for deliveries while likewise competing with weak hydropower and nuclear generation. As an outcome, the spread in between the Asian LNG criteria (JKM) and the European gas standard (TTF) turned greatly unfavorable. As gas ended up being more pricey in Europe than in Asia, LNG deliveries were diverted to Europe, where providers might get a much better cost (Chart 3, panel a).

By contrast, the JKM-TTF spread turned favorable in March 2026, producing rewards to reroute LNG deliveries to Asia. Its much smaller sized magnitude points to less aggressive Asian purchasing than Europe’s in 2022, showing higher need versatility thanks to gas-to-coal replacement and China’s more varied energy mix. As an outcome, Asian LNG need has actually fallen far more dramatically in 2026 than it performed in 2022 (Chart 3, panel b).

Together, these aspects have actually considerably decreased competitors for LNG deliveries and assisted suppress upward pressure on worldwide gas costs, in spite of a disturbance that has actually impacted a significant share of international LNG trade.

Chart 3

European and Asian gas market characteristics: 2022 vs 2026

a) Gas storage utilisation rate and gas spreads

b) Asian LNG imports

(left panel: percent of overall capability; ideal panel: USD per MMBtu)

(metric tonnes)

Cycling Looking ahead

The contrast in between the Iran and Ukraine wars highlights an essential lesson: the size of an energy supply interruption alone does not figure out the rate action. Preliminary market conditions, stocks, need versatility and expectations can all be simply as essential.

In general, expectations of a speedy end to the dispute, more powerful pre-crisis oil and gas market basics and higher versatility in Asian need have actually up until now assisted consist of the influence on energy rates. Conditions in the Strait of Hormuz– and, by extension, on international energy markets– stay extremely unstable, especially following the restored rise in energy costs set off by the resumption of strikes in between the United States and Iran in July. An extended closure would slowly diminish the existing buffers and worldwide stocks while requiring markets to desert expectations of a quick resolution, hence increasing the danger of restored upward cost pressures.

Alternatively, a continual resuming of the Strait might apply considerable down pressure on rates, especially as oil and gas markets got in 2026 with expectations of significant supply surpluses. These expectations might have enhanced even more, as the Iran dispute might motivate customers to shift more quickly towards option, more reputable energy sources, decreasing their dependence on oil and gas.

The views revealed in each blog site entry are those of the author(s) and do not always represent the views of the European Central Bank and the Eurosystem.

Have a look at The ECB Blog and subscribe for future posts.

For subjects connecting to banking guidance, why not take a look at The Supervision Blog

Cycling Recommendations

Adolfsen, J.F., Lappe, M.S., Manu, A.S., Rößler, D., Schupp, F. and Stalla-Bourdillon, A. (2026 ), “Gas market shocks: Tracing the impact on Euro Area inflation expectations Journal of MacroeconomicsVol. 8, 103760.

Albrizio, S., Bluedorn, J., Koch, C., Pescatori, A. and Stuermer, M. (2023 ), “Sectoral shocks and the function of market combination: The case of gas”, in AEA Papers and ProceedingsVol. 113, pp. 43-46, American Economic Association, Nashville, May.

Burian, V. and Stalla-Bourdillon, A. (2026 ), “Non-linearities in oil costs: which conditions matter?”, Economic BulletinIssue 2, ECB.

Caldara, D., Cavallo, M. and Iacoviello, M. (2019 ), “Oil rate flexibilities and oil rate variations Journal of Monetary EconomicsVol. 103, pp. 1-20.