How LNG geopolitics, the phase-out of Russian supply, and rising Middle East tensions are reshaping the future of the European gas market

European gas markets have once again been thrust into geopolitical turbulence as tensions between Iran and the United States send shockwaves through global energy trading. Prices across European benchmarks surged amid mounting concerns that the crisis could disrupt supply routes through one of the world’s most strategically important maritime corridors: the Strait of Hormuz.

The narrow waterway connecting the Persian Gulf to the Arabian Sea is a critical artery for global energy flows. Roughly 20% of global liquefied natural gas (LNG) trade passes through the Strait of Hormuz, making it a structural vulnerability for gas markets worldwide. As a result, even the perception of risk to shipping through the strait can trigger immediate reactions from traders and energy importers.

This dynamic is particularly relevant for Europe, which has spent the past several years restructuring its gas supply chain following the collapse of pipeline deliveries from Russia, making its stakes significantly high. The continent has increasingly turned to LNG imports to stabilize its energy system, tying its energy security more closely to global maritime routes and producers in the Middle East.

Market volatility has also been amplified by concerns surrounding Qatar’s LNG export infrastructure at Ras Laffan, one of the largest LNG export hubs in the world. As Qatar remains one of the dominant suppliers in the global LNG market, any operational disruption or logistical constraints affecting its exports could quickly reverberate through European supply contracts and spot markets.

Recent reports suggest that shipping activity through the Strait of Hormuz has been severely disrupted amid the escalating conflict, with vessel traffic declining sharply and several tankers delaying transit through the corridor. While some ships have recently managed to pass through the strait under limited or negotiated conditions, overall traffic remains significantly reduced compared with normal levels.

The episode highlights the fragility of Europe’s new gas order. The continent may have reduced its dependence on Russian pipelines, but the shift toward LNG has exposed it to a different set of geopolitical risks tied to maritime chokepoints and instability in the Middle East.

Even relatively limited disruptions can have outsized effects on European markets. Because LNG cargoes are highly flexible and can be redirected across regions depending on price signals, Europe must compete directly with Asian buyers for available supply. In such an integrated market, geopolitical tensions do not need to halt supply entirely to generate market stress; the mere risk of disruption can be enough to shift trade flows and drive prices sharply higher.

The Global LNG Market

To better understand these dynamics, the geopolitical sensitivity of European gas prices must be understood within the broader evolution of the global LNG market.

The year 2025 was widely regarded as a transitional period for LNG. A wave of new liquefaction projects signaled the beginning of a structural shift toward higher supply growth, though the market experienced two distinct phases during the year. According to the International Energy Agency’s Gas Market Report, LNG supply remained tight in the first half of 2025, keeping prices elevated across both Asian and European markets. However, this imbalance gradually eased in the second half of the year, as supply growth accelerated into double digits with the ramp-up of new export capacity.

Despite the increase in supply, global LNG demand growth slowed compared with the previous year. The slowdown was driven primarily by the Asia-Pacific region, where China reduced imports due to rising domestic gas production and increased pipeline deliveries from Russia.

Europe Natural gas imports and exports (Mln TJ), 2000-2023

Source: IEA Data Services

Europe, by contrast, remained the key driver of LNG demand growth. The continent imported more than 140 bcm of LNG in 2025 to replenish storage levels and compensate for lower-than-expected renewable energy output earlier in the year. The United States, being the largest LNG exporter in 2025, followed by Australia and Qatar, supplied more than half of Europe’s total LNG imports, reinforcing its dominant position in global LNG trade.

Looking ahead, the IEA identifies North America as the main engine of future LNG supply expansion. A new wave of liquefaction projects in the United States, Canada and Mexico is expected to significantly increase export capacity over the next several years. This expansion has been supported by a renewed investment cycle, which resumed strongly after the temporary pause on US LNG export approvals introduced by the Biden administration in 2024. Project development has also been accompanied by a surge in contracting activity. According to the IEA, the average duration of LNG contracts signed in 2025 reached roughly 15 years, reflecting the continued importance of long-term agreements in securing supply.

One illustration of this growing integration is the relationship between benchmark gas prices. The correlation between Europe’s Title Transfer Facility (TTF) and the Japan Korea Marker (JKM), Asia’s primary LNG benchmark, reached 0.955 in 2025. This high level of correlation reflects a more interconnected global gas market in which supply disruptions or geopolitical tensions quickly transmit price signals across regions.

Correlation between TTF -JKM and US LNG Share, 2013-2024

Source: IEA Gas Market Report

Europe’s Structural Energy Transformation

As previously discussed, Europe’s growing reliance on LNG is rooted in the transformation of its gas market, which began with the sharp reduction of Russian pipeline deliveries following the Russian-Ukrainian conflict. Russian gas exports to the European Union fell by roughly 90% during the crisis, forcing policymakers and energy companies to rapidly restructure the continent’s gas supply system. Europe responded by diversifying supply sources and expanding alternative import routes.

LNG imports in Europe per region (Mm³), 2026

Source: Eurostat

Pipeline deliveries from Norway increased substantially, while additional volumes were secured from Azerbaijan and Algeria. At the same time, the European Union significantly strengthened its presence in the global LNG market through new supply partnerships with the United States and Qatar.

A key element of this transition was the rapid expansion of LNG import infrastructure. Several European countries accelerated the construction of regasification terminals capable of converting LNG shipments into pipeline gas for distribution across national networks. Floating storage and regasification units (FSRUs) allowed countries such as Germany and the Netherlands to quickly increase LNG import capacity without the long construction timelines required for permanent terminals. These developments were supported by the European Union’s REPowerEU initiative, which aims to eliminate dependence on Russian fossil fuels by 2027. The program combines infrastructure expansion, diversification of supply sources and accelerated deployment of renewable energy.

As a result, Europe has moved from a system dominated by pipeline imports toward a more diversified model that integrates LNG, multiple pipeline suppliers and a growing share of renewable energy. While this transformation has improved supply security, it has also increased Europe’s exposure to global gas market dynamics.

Storage, Demand and the New Price Mechanics

Within this newly diversified landscape, the management of gas storage exerts an even greater influence on price mechanics. As of early March 2026, European storage facilities were slightly above 30% full, making the upcoming summer refill season particularly important for market stability.

EU storage levels (TWh), 2026 vs historical average (TWh), 2011-2025 

Source: AGSI

Gas storage plays a critical role in balancing seasonal demand fluctuations. During winter months, natural gas consumption rises sharply as it is used for heating and electricity generation. Low storage levels at the beginning of the year therefore require aggressive replenishment during the summer injection season.

As mentioned before, this dynamic has become an important driver of price volatility. When European buyers need to refill storage quickly, they must compete with Asian importers for available LNG cargoes. Because LNG exporters typically sell to the market offering the highest price, European and Asian buyers effectively compete within the same integrated global market.

Recent geopolitical tensions in the Middle East have added further pressure to this system. The Strait of Hormuz, through which roughly one-fifth of global LNG supply passes, represents a major potential bottleneck. Concerns about disruptions in this corridor contributed to European gas prices exceeding €65/MWh in early March 2026.

Meanwhile, structural trends in European energy demand are gradually evolving. The growing deployment of renewable energy sources such as wind and solar is expected to reduce long-term demand for fossil fuels, including natural gas.

Gas demand by sector (Mn TJ), 2000-2023

Source: IEA Data Services

However, gas continues to play a crucial role in maintaining the stability of the electricity system. Because renewable energy generation depends on weather conditions, gas-fired power plants provide the flexible backup capacity needed to balance electricity supply and demand.

Higher gas prices also have significant implications for European industry. Energy-intensive sectors such as chemicals, fertilizers and metals rely heavily on gas as a production input. Sustained price increases therefore affect the competitiveness of European industry relative to global peers.

Future of European Gas

Building upon recent diversification efforts and market shifts discussed so far, the future trajectory of Europe’s gas market relies on a comprehensive structural redesign. Rather than just securing emergency supplies, the strategic focus has shifted toward building a more resilient gas architecture capable of withstanding future geopolitical shocks.

In this context, diversification through LNG remains the cornerstone of this strategy. With global supply expanding, particularly from North America, where several new approved liquefaction projects are coming online, Europe is well-positioned to secure greater volume flexibility. To capitalize on this and reduce exposure to spot market volatility, European utilities are increasingly pivoting toward long-term agreements. This shift mitigates the risk of relying too heavily on short-term purchases, stabilizing procurement strategies for the coming years.            

To effectively support this new procurement model, infrastructure investment is critical. Beyond adding LNG import terminals, the European Union has prioritized investments in storage facilities, interconnectors and internal pipeline networks to improve the gas distribution across the continent.

At the same time, this new paradigm introduces a fundamental strategic trade-off. While the transition away from pipeline monopolies has enhanced security, deep integration into the global LNG trade inevitably ties European prices to broader global market risks and geopolitical dynamics.

Looking ahead, Europe’s energy landscape is entering a new phase defined by this very balance. As the EU pursues its long-term decarbonization goals, natural gas will remain an indispensable transitional fuel, providing the flexible gas-fired generation needed to stabilize electricity grids alongside growing renewable energy. Ultimately, managing the inherent volatility of a globally interconnected market while gradually reducing fossil fuel reliance will be the defining challenge for Europe’s energy security in the coming decade.

Written by:

• Maria Chasovnikova
• Claudio Di Nubila
• Demet Coskun
• Viola Castoldi
• Davide Marsetti
• Andrea Rusconi
• Niccolò Zucchini
• Viola Bidasio