The EU is in the grip of another energy price shock, thanks to the US-Iran war – now in its eighth month – and Russia’s war against Ukraine.
Restrictions remain on the Strait of Hormuz, through which 20% of global oil and gas exports transit.
Energy and fuel prices have spiked across the globe, hitting business and households.
The oil and gas shortage is also worsening consumer inflation and government borrowing costs.
The crisis is also worsening transatlantic relations. This week President Donald Trump threatened a ban on US diesel exports in a bid to lower pump prices down ahead of the November midterms.
In Europe, high energy costs are hitting voters and, according to recent research, fuelling a rise in support for populist and far-right parties.
In a week when EU energy ministers grappled with the issue at a meeting in Dublin, and ahead of next week’s budget, RTÉ’s Europe Editor Tony Connelly assesses how we got to this point, and what choices governments face in trying to alleviate the pressure on households.
The wars in Iran and Ukraine are hitting global oil and gas markets, pushing up the cost of living and bleeding into an already fractious political mood, both in Europe and the United States.
Ahead of an informal meeting of EU energy ministers in Dublin this week, Energy Commissioner Dan Jørgensen told the FT that 50 million Europeans could be forced to choose between heating and food this winter.
“We have millions of citizens who basically, at the end of the month, will have to choose between freezing or being hungry because they cannot pay the bills,” he said.
Residential electricity prices in the EU were 34% higher on average in the first half of 2025 compared to 2019. In the second half of 2026, wholesale prices could be up by 25% year-on-year.
Electric Ireland increased residential electricity prices by 8% and gas by 7.7% in July, the first time prices went up since the immediate aftermath of Russia’s invasion of Ukraine.
What is driving the increase in prices?
Some 20 million barrels of oil per day, or one fifth of global consumption, and 20% of LNG exports from Qatar and the United Arab Emirates (UAE) normally pass through the Strait of Hormuz.
When the US and Israel attacked Iran on 28 February, shipping through the Strait slowed to a near standstill.
Oil prices immediately went up by 8% and the European gas price by 20%.
While Europe does not depend on the Gulf for most of its gas, wholesale buyers were still having to compete with Chinese, Indian and Japanese traders in a tightening LNG market.
Europe has also not been stockpiling gas to the level that critics say is necessary.
Gas storage in February stood at 46 billion cubic metres (bcm), compared to 60 bcm in 2025.
If there is a cold snap this winter, European wholesale buyers will have to pay a premium to get the gas needed.
Europe is also heavily exposed to the Gulf for refined petroleum products such as jet oil.
The EU’s electricity network has been somewhat cushioned thanks to the increase in renewables, which now account for 35% of power across the main markets, compared to 24% just before the Russian invasion.
However, fluctuating gas prices can have a loading effect on electricity prices, and a global diesel shortage is hitting key sectors of the economy, not least agriculture.
Why are electricity prices so much higher in Ireland?
In the second half of 2025, Ireland had the highest electricity prices in Europe compared to all other member states at €0.40 per kWh – that’s 40% above the EU average.
The higher cost is due to geographical distance from Europe’s major power grids, a higher reliance on fossil fuels (Ireland’s economy boomed when gas-powered energy was cheap), a dispersed population and a highly costly grid system.
Gas is needed in the final stage of the energy chain to generate electricity, and that’s why an over-reliance on gas makes a country’s energy costs disproportionately high.
Gas prices have fluctuated wildly since the Iran war started. They initially rose 75% as LNG production in Qatar ground to a halt.
The price of LNG in Europe has risen by 70% since July to €73 per megawatt hour (MWh), compared to a normal range of between €30-€60 per MWh.
Why is diesel suddenly to the forefront?
Diesel is politically sensitive as so much of the modern economy – cars, agricultural vehicles, industry, shipping, heavy machinery – depends on it, because it provides more energy than other oil products.
The Gulf and Ukraine wars are hitting the supply chains, refineries and shipments affecting about one third of the global diesel market – in a tightening market the price rises.
The Middle East normally supplies 19% of the world’s diesel, the US 15% and Russia 11%.
Diesel shipments from the Gulf were about one quarter of their pre-war levels in August, while Russia’s exports of diesel had fallen by one fifth.
It is an acute problem for US President Donald Trump and the Republican Party facing into the November midterm elections.
Diesel prices hit a record of $6.52 a gallon last week with prices up by around 70% on pre-war levels.
In the EU, average prices hit €2.24 a litre, compared to the pre-war average of €1.59.
What has the Trump administration been doing to cool prices?
Mr Trump has been complaining for several weeks about Ukraine hitting Russian refineries, even though the more acute impact has been down to the Iran war, according to the International Energy Agency (IEA).
Following his meeting with Ukraine’s President Volodymyr Zelensky in New York, Mr Trump mooted a 90-day ban on exports of US diesel as one way to reduce prices at the pump.
On Thursday, that threat was specifically linked to a demand that France and Germany release 120 million barrels of diesel from their strategic reserves.
In March, in the immediate aftermath of the US-Israel attack on Iran, the IEA coordinated the biggest release of strategic oil reserves in history – 400 million barrels.
Watch: IEA Chief Fataih Birol speaks to RTÉ’s Six One News on rising fuel prices
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US administration officials have been grumbling that France and Germany had given commitments to release some of their stocks under this agreement but had been dragging their feet.
On Tuesday, Minister for Climate, Energy and the Environment Darragh O’Brien told reporters on his way into the informal meeting of EU energy ministers in Dublin Castle, that his contacts in New York and Washington last week suggested that the Trump administration was tilting away from a diesel export ban, but added: “We’re not being complacent.”
What impact would a 90-day ban on US diesel exports have had?
Even in the United States, there were concerns that a ban would do more harm than good.
If diesel is not being exported, then it has to be stockpiled, and there would not be the storage capacity in the US if an export ban lasted for 90 days.
In turn, cutting diesel refining would also disrupt other by-products of the process, such as gasoline.
Furthermore, some US manufacturers actually import diesel, meaning they would pay a higher price off the world market.
It’s likely Mr Trump would not have kept the ban in place for the full three months – rather he would probably have lifted it after the midterm elections in early November, say analysts.
For Europe, a US diesel export ban would be bad news, not least because it would push already elevated prices higher.
The EU has spectacularly reduced imports of Russian oil products, meaning there has been a big increase in purchases of US diesel.
Last year, the EU imported 180,000 barrels of US diesel per day, nearly one third of its total imports.
“We fully reject any ban on diesel,” European Commission spokesperson Anna-Kaisa Itkonen said yesterday morning.
“A ban would not be beneficial to anyone. It would undermine our trust in the United States as a reliable partner,” she added.
What are the political implications for Europe?
French President Emmanuel Macron said a US export ban would be “catastrophic”, not least because high energy prices – exacerbating an already acute cost of living crisis – is thought to be fuelling support for far-right parties across Europe.
There are expected to be major gains by far- and hard-right parties in France, Spain, Italy and Poland next year.
A study by CESifo in Germany published in July found that in the aftermath of the Russian invasion of Ukraine, those households which had suffered above average increases in energy prices were 7.5% more likely to vote for the far-right AfD.
How seriously did the EU take the US threat?
Diplomatic activity had been building since EU energy ministers met in Dublin on Tuesday.
Following Mr Trump’s threat levelled against France and Germany, the French government on Thursday called on the European Commission to set up a conference call with Irish officials (due to the EU Presidency) and counterparts from the UK, Germany and Italy.
The EU’s Energy Union Task Force met in emergency session yesterday morning, bringing together officials from all member states to coordinate a political response to the US threat.
It was reported that during that meeting, France had recommended a Europe-wide release of 50 million barrels of diesel from strategic reserves, with a further 50 million being released globally through a coordinated IEA agreement.
At midday, the European Commission confirmed that the task force had met, but would not confirm the figures, insisting that any release of oil stocks was a matter for the IEA, although the commission would coordinate the involvement of EU member states in any strategic release.
By late yesterday morning, the Irish presidency had convened another emergency meeting, this time of EU ambassadors, while in Paris the Elysée Palace announced that Mr Macron would hold a video call with G7 leaders – including Mr Trump.
Shortly afterwards, the US president announced on Truth Social: “Europe has just agreed to release a massive amount of their heavily stocked Diesel Oil.
“The process will begin immediately. Thank you for your attention to this matter! President DJT.”
That was confirmed moments later by a G7 statement.
G7 countries had agreed to release 100 million barrels of crude oil and diesel over the next four months, including a frontloaded amount in the coming 20 days – most likely a nod to Mr Trump’s Congress election hopes.
Leaders also committed to coordinating refinery maintenance in order to avoid simultaneous shutdowns, and called on other countries with capacity to refine more crude into diesel where possible.
It was clear from the statement, however, that some of the release amounted to those commitments already made by G7 members via the IEA in March.
It was also not clear how much of the release would be crude and how much diesel.
The impact was immediate. European diesel futures dropped, with the benchmark down 8% to $1337.75 per tonne, the lowest level since the start of September, while wholesale diesel prices in New York harbour fell almost 5% to $4.43 a gallon.
Last night, Mr Trump told reporters that there would be no US export ban and that in fact one “was never really on the table”.
“But what Europe did was a great thing,” he added.
Whether it will be enough to save Mr Trump’s midterm prospects remains to be seen.
What more can governments do?
Officials will watch carefully what impact the release will have on diesel prices.
Long term, the EU’s objective is to increase the use of renewables and wean itself off imported fossil fuels.
For now, Europe is almost entirely dependent on imported oil, but there is a greater emphasis on importing refined products, due to the decline in European refining capacity, such as diesel, according to the Bruegel think tank.
Diesel imports have grown 25-fold since 1990.
The other ambition is to boost electrification across the EU.
“Clean electricity generated in Europe will allow Europe to reduce its dangerous dependency on geopolitically volatile and expensive imported fossil fuels,” Bruegel’s deputy director Simone Tagliapietra told EU energy ministers in Dublin.
He added: “It will also unlock new industrial opportunities, especially related to the manufacturing of those clean technologies for which Europe has comparative advantages.”
However, growing electrification will require member states to cooperate much more closely when it comes to harmonising national grids and cross-border interconnectors.
According to critics, there is growing re-nationalisation of electricity policy as member states pursue their own energy-subsidy schemes and capacity mechanisms.
“Clarity on needs and reduction of regulatory risks will lower capital costs. This can drastically cut the cost of the capital-intensive system that we want to build to electrify our economies,” Mr Tagliapietra told ministers.
A key piece of legislation that the Irish Government is hoping to advance during its EU presidency is the so-called ‘Grids Package’.
It aims to enhance 11 million kilometres of electricity networks across the continent to equalise supply and demand, improve storage, boost cross-border interconnectors and ensure the grid is better able to handle (and share) the growing volume of wind and solar energy that is supposed to replace imported fossil fuels.
These issues will dominate upcoming meetings under the Irish presidency, including a key summit in Brussels on 15 October.
