SOFIA, July 29 (Reuters) - While Europe's vulnerability to energy supply disruptions has declined significantly since the 2022 Russia crisis, the region faces another insidious threat: high energy prices that are hollowing out the continent's industrial base.
Europe has weathered the global energy squeeze caused by the Iran war that began on February 28 relatively well thus far, largely thanks to massive investments in liquefied natural gas terminals, mandatory gas storage and increased reliance on U.S. LNG. European gas prices have risen, but the region has yet to enter true crisis mode, as it did in 2022 following Russia’s full-scale invasion of Ukraine.
But the Iran conflict has also demonstrated that Europe’s exposure to global fossil fuel markets leaves it vulnerable to shipping disruptions, geopolitical instability and competition with Asian buyers for LNG. As long as imported fossil fuels determine electricity prices, every external shock risks translating into higher costs for European households and industry.
European natural gas and electricity prices were down 34% and 14%, respectively, from their 2022 averages by the end of 2025. Even so, they remained about 50% and 38% above pre-war levels.
Elevated energy prices have already had a significant economic impact in Europe. The continent lost more than one million industrial jobs between 2019 and 2023. Germany, previously considered Europe's growth engine, shed another 143,000 in 2025, according to Handelsblatt.
This was due to many factors, including pandemic-related disruptions, elevated inflation and increased competition from China in advanced manufacturing, but higher energy prices also played a major role, partly because they made it more challenging for European manufacturers to compete.
Europe, therefore, risks faster deindustrialisation if affordable electricity remains scarce.
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