By Chr. Christodoulou-Volos
- Professor of Macroeconometrics and Finance
- Chair of the Department of Economics and Management at Neapolis University Pafos
The energy crisis caused by the escalation of armed conflicts in the Middle East serves as a stark reminder of a weakness that Europe has been aware of for years but has yet to definitively address: its heavy reliance on imported fossil fuels. The cost of this dependence is no longer reflected solely in electricity and fuel bills, but also in the overall competitiveness of the European economy.
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
The scale of the problem is illustrated by a particularly telling figure. As European Commission President Ursula von der Leyen noted in her State of the Union address, since the start of the conflict and the disruption in the Strait of Hormuz, the European Union has incurred approximately 90 billion euros in additional costs for imported fossil fuels, without having imported a single additional unit of energy.
This is essentially a “war premium” that European economies are paying. They are not buying more energy. They simply pay more for the same energy because geopolitical uncertainty increases transportation costs, restricts supply, and raises the risk premium in international markets.
From the Middle East to the European Economy
The recent attacks on critical oil infrastructure in Saudi Arabia have heightened fears of further restrictions on oil exports. The attack on the East-West Pipeline—which is of particular strategic importance because it allows Saudi Arabia to bypass the Strait of Hormuz— caused disruptions to flows to the port of Yanbu and even affected scheduled deliveries to European refineries.
These developments pushed Brent crude close to $110 per barrel, while natural gas prices in the European market rose to particularly high levels. Despite the partial de-escalation that followed, the markets continue to price in significant geopolitical risk.
The problem, therefore, is not just oil. Europe is facing simultaneous uncertainty in the oil and natural gas markets. And this is particularly significant for European industry, transportation, electricity generation, and household disposable income.
Inflation is returning via energy
Rising energy costs have a domino effect. More expensive oil means higher transportation and fuel costs. More expensive natural gas means higher electricity generation costs and higher costs for energy-intensive businesses. Subsequently, part of these increases is passed on to the prices of goods and services.
This is why the European Central Bank is monitoring developments very closely. ECB experts estimate that energy prices pose significant upside risks to inflation. In the September scenarios for the fourth quarter of 2026, the price of oil is projected to be approximately $88 in the baseline scenario, $99 in the adverse scenario, and $132 in the severe scenario. For natural gas, the corresponding prices are approximately 60, 77, and 130 euros per MWh.
The difference between the scenarios is extremely significant. In the severe scenario, the ECB estimates that global oil supply could fall by about 8%, while LNG supply could fall by about 12%.
Greece and Cyprus: Small Economies, Major Impacts
For Greece and Cyprus, the issue is even more critical. Both economies are particularly vulnerable to fluctuations in energy costs, as increases in international prices are passed on relatively quickly to transportation costs, electricity, business costs, and ultimately consumer prices.
For households, this means a reduction in real disposable income. For businesses—particularly small and medium-sized enterprises and energy-intensive industries—it means higher operating costs and reduced profit margins. For tourism and transportation, it means higher operating costs. And for public finances, the pressure for support measures increases if the energy crisis drags on.
The problem, therefore, is not just how much we will pay for gasoline or electricity. It is how much the economy as a whole will pay to function in an environment of permanently higher energy risk.
Energy independence is no longer just an environmental goal
Perhaps the most important message from the current crisis is that the energy transition is now also a matter of economic and geopolitical security. The European Commission itself emphasizes that strengthening domestic renewable energy sources and nuclear power, electromobility, grid expansion, and energy storage can reduce dependence on imported fossil fuels. According to the Commission, doubling the share of electricity by 2040 could reduce the annual fossil fuel import bill by approximately 260 billion euros.
Europe has already invested significantly in renewable energy sources, but generation alone is not enough. Networks, storage, and infrastructure are needed to ensure that energy is available when and where it is needed.
The wars in the Middle East demonstrate that energy dependence now comes at a direct economic cost. The additional 90 billion euros cited by the European Commission is only a snapshot of the costs so far. If geopolitical tensions persist, the bill could rise even further.
For Europe, and especially for countries like Greece and Cyprus, the dilemma is now clear: every new geopolitical crisis must not automatically turn into a new energy crisis. True economic security requires less dependence on imported fuels, more domestic energy production, and, above all, infrastructure that will enable Europe to make effective use of the energy it produces.
