A German porcelain factory that survived both the Nazi regime and communism is preparing to shut down its kilns after 182 years in operation. In neighbouring Poland, the fertiliser industry is calling on its Energy Ministry to take action against rising costs, while in Spain, the government has spent €12 billion ($13.4 billion) since March to cushion the impact of higher energy bills ahead of the 29 November elections.

Governments, industries and citizens across Europe are confronting their second major energy crisis in less than five years, having yet to fully recover from the first, the severe energy shock of 2022 that followed Russia’s invasion of Ukraine. European industry emerged deeply scarred from that crisis, fuelling fears of widespread factory closures and deindustrialisation, concerns that have now returned with even greater intensity. With more than half of European voters due to go to the polls over the next 12 months, the political consequences threaten to be equally significant.

Natural gas prices have risen by almost 200% since February, exceeding €100 per megawatt-hour in late October, their highest level in four years. At filling stations, diesel prices have reached record levels, while jet fuel prices have nearly doubled. Electricity prices are also rising, with Germany already exceeding the average price levels recorded at the beginning of winter, even compared with 2022.

Since the outbreak of the war in Iran, Europe’s energy import bill has increased by more than €127 billion, according to the European Commission, at a time when many governments are already struggling to manage enormous public debts.

Among the sectors expected to suffer most are those with high energy consumption and substantial transport requirements, ranging from construction and fertilisers to chemicals, agriculture and aviation. And as voters struggle to pay their bills and fill their cars, energy is expected to become a major political issue ahead of elections.

“After five years of this, we have become somewhat tired of talking about how serious the problem is, but this really is an enormous issue,” said Nikolai Romanovski, a senior energy management executive at the European Chemical Industry Council (CEFIC), which represents Europe’s largest industrial energy consumer. “I am not sure that the response we are seeing at European level truly matches the seriousness of the crisis we are facing.”

Weather forecasts offer some reassurance of a milder winter

One more reassuring development for energy consumers is that weather models are forecasting a generally mild winter, influenced by a potentially exceptionally strong El Niño phenomenon. However, the risk of severe cold spells remains. British private weather forecasting company MetDesk warns that an early disruption of the polar vortex, the band of high-altitude winds that forms in autumn and keeps Arctic air close to the North Pole, could trigger another cold snap across northern Europe in December. At the same time, weather patterns for the remainder of winter suggest an increased likelihood of cold periods.

European energy markets are also vulnerable to cold spells in Asia, which could intensify competition for liquefied natural gas (LNG) cargoes and drive prices even higher.

EU governments have more than tripled their fiscal intervention to address the crisis since June, with measures approaching a combined €35 billion, according to figures from the Bruegel think tank shared with Bloomberg. However, much of the support appears insufficiently targeted and even encourages fossil fuel consumption, potentially making the problem worse during the winter months. Spain accounts for a third of the spending. The fiscal impact of the gas price cap Italy plans to introduce next year has not yet been included.

The complete ban on imports of liquefied natural gas from Russia takes effect on 1 January, highlighting how difficult it has proved for the European Union to break its dependence on a market that was once its largest gas supplier. Despite efforts to expand renewable energy, the EU’s continuing vulnerability to international energy markets has been brutally exposed by the war in Iran and the effective blockade of the Strait of Hormuz, a vital artery for global energy supplies.

Even if the war between the United States and Iran were to end soon, following the US midterm elections and more optimistic reports about peace talks with Tehran, energy shipments would be unlikely to return immediately to normal.

Crisis scenarios

European governments and institutions are now urgently developing crisis scenarios for the conditions that could prevail this winter. Natural gas reserves are at historically low levels, approximately 15 percentage points below their recent average and well below the EU’s 90% storage target. One scenario, drawn up by the European Network of Transmission System Operators for Gas, suggests that Europe could finish the winter with its storage facilities just 10% full if temperatures are lower than expected and international LNG markets remain under pressure. Even this scenario would require a painful 15% reduction in energy demand. Germany, Europe’s largest economy, could see its reserves exhausted by March.

If this scenario materialises, the need to replenish historically low reserves next summer could prolong market tightness into the following year, the International Energy Agency (IEA) warned last week.

“It is absolutely clear that we are entering a dangerous period,” TotalEnergies chief executive Patrick Pouyanné said on 29 October, referring to the outlook for Europe’s natural gas market. “We live in a world of crises.”

Natural gas contracts for summer 2027 are already trading at higher levels than those for the following winter, reflecting growing concerns about Europe’s supply-demand balance and further complicating efforts to build reserves for next year. This increases pressure on national governments to support gas storage.

Another factor attracting increasing attention is the physical security of energy infrastructure and the possibility that the crisis could leave Europe even more vulnerable to hybrid attacks during the winter. Such an incident could be the precursor to a broader supply crisis, according to Anne-Sophie Corbeau, a researcher at the Center on Global Energy Policy in Paris. She highlighted in particular the risks to supplies through Norwegian pipelines, which are a vital source of energy for European households and industries, accounting for around a third of total imports.

“My biggest concern is a possible Russian hybrid attack against energy infrastructure,” she said. “Things can always get much worse.”

‘We are leaving room for populists to win elections’

The political consequences of the current energy crisis are already becoming apparent and could prove more serious than those of the previous crisis. Protesters have taken to the streets from Berlin to Milan and Paris, demonstrating against the cost of living, in which energy is a decisive factor.

In France, soaring energy prices are exacerbating a broader political, fiscal and social crisis ahead of the April presidential election. Following Russia’s invasion of Ukraine, the government spent approximately €70 billion on a gross basis, according to France’s Court of Auditors, supporting businesses and households and subsidising petrol. That spending helped contain social unrest but placed a significant burden on public finances, widening a budget deficit that the government is still struggling to bring under control.

Facing pressure from investors selling government bonds, French President Emmanuel Macron’s government has changed its approach this time, directing financial assistance towards those who need it most. Initial measures to address the consequences of the conflict in Iran focused mainly on the most exposed sectors and amounted to just €70 million, although spending has since increased.

“For the first time, when faced with crises and external shocks, the state is responding by reducing spending rather than increasing it,” Budget Minister David Amiel told members of the National Assembly’s Finance Committee on 4 November. “This represents a fundamental change because, in the geopolitical environment in which we find ourselves, one crisis follows another.”

This approach is proving unpopular in France and has given candidates from the political extremes a new line of attack. Far-right National Rally leader Marine Le Pen, who holds a substantial lead in opinion polls for first-round voting intentions, has proposed a drastic reduction in VAT on fuel and other forms of energy, at an annual cost of almost €11 billion, according to her party. On the other side, radical-left candidate Jean-Luc Mélenchon has pledged to impose caps on prices and profit margins at oil refineries.

The current government has rejected both approaches, arguing that they are either too expensive or pose risks to supply. Instead, in an effort to ease the protests, it has released diesel from strategic reserves and announced measures that do not directly burden public finances.

Italy is also on the front line of the crisis, importing approximately three-quarters of all the energy it consumes. It is among the countries hardest hit by the blockade of the Strait of Hormuz, with Qatar extending its force majeure declaration on deliveries to Edison SpA until the end of the year, a development that has already deprived the Italian energy company of 35 cargoes this year. Around 60% of Italy’s diesel imports also come from the region. Inflation in Italy jumped to 5.6% in October because of rising energy prices.

For five days last month, lorry drivers protesting against high fuel costs blocked major roads into and out of Naples, as well as the area around the port of Messina in Sicily, which connects the island to mainland Italy. Local business association Confcommercio Sicily estimated that the impact on Sicily alone, which depends heavily on road transport, reached approximately €50 million over five days.

Around 70% of Europe’s lorries belong to fleets of fewer than 10 vehicles, often family-run businesses that struggle to absorb diesel price increases because their profit margins are already narrow, according to Patrick Schuster, head of commercial activities for road transport at Kuehne + Nagel International AG. Fuel costs have already risen by approximately 20% since the war in Iran began, while freight transport charges have increased by around 15%, creating inflationary pressures throughout the economy. “For a supply chain that has existed for 100 years, there is no easy solution that you can implement overnight,” he added.

The blockades in Italy ended when the government allocated more than €100 million for diesel tax relief and approximately €70 million to support agriculture and fisheries. However, as in much of Europe, implementing such measures carries the risk of further increasing already enormous public debt. Prime Minister Giorgia Meloni’s government is negotiating with the European Commission over introducing a cap on the price of natural gas used for electricity generation, in an effort to contain electricity costs.

Meanwhile, tensions are beginning to emerge between countries. Last month, as natural gas prices surged, Italy clashed with Germany, arguing that Berlin’s failure to adequately fill its gas storage facilities before winter was triggering panic buying on the spot market, driving up costs for everyone.

Europe is not doing enough to protect citizens and industries from rising costs, according to Poland’s Deputy Energy Minister Wojciech Wrochna. His country is also heading towards elections next year. One-fifth of government budget expenditure for the current financial year has been directed towards defence, amid the continuing war in Ukraine on its eastern border, leaving very little fiscal room to address the energy shock.

Immediately after Russia’s invasion of Ukraine, the EU moved rapidly to adopt a series of emergency legislative measures to limit the impact on energy markets and consumers. This time, however, the European Commission has focused on interventions that can be implemented at national level, shifting responsibility to member-state governments.

Wrochna said the fertiliser industry had expressed particularly strong concerns about price increases and their knock-on effects on food costs and food security. Norwegian chemicals company Yara International ASA, which operates 21 factories in Europe, warned during its earnings presentation last month that, if natural gas prices remain high, its energy costs would increase by $450 million on an annualised basis during the October-December period. At the same time, it is expanding production capacity in other parts of the world, including Texas, to reduce its exposure to European natural gas prices.

“The situation is much more difficult and serious than it was years ago,” Wrochna said, adding: “We are leaving room for populists to win elections.”

‘The final nail in the coffin’: The threat of further deindustrialisation

The ban on LNG imports from Russia from 1 January will force Europe to seek alternative sources to cover the resulting shortfall, equivalent to approximately 15% of EU supplies. According to Bloomberg calculations, this represents a volume equivalent to one LNG cargo every two days. European countries will need to secure supplies on international markets, paying significantly higher prices.

At a meeting of EU energy officials in early October, countries discussed their concerns about supply following implementation of the ban, according to a memorandum obtained by Bloomberg. However, EU Energy Commissioner Dan Jørgensen recently insisted there would be no retreat from the 1 January deadline. “The ban remains in place,” he said at a press conference last month.

The reduction in energy imports from Russia has been offset by increased supplies from the United States, raising concerns among some that Europe is simply transferring its dependence to an ally whose reliability is now being questioned. US President Donald Trump threatened earlier this year to ban diesel exports, putting half of Europe’s imports at risk.

That threat prompted European countries to commit to releasing emergency reserves, limiting some of the price increases. European consumption figures also remain subdued, indicating that the market is partly balancing because of lower demand. Refineries around the world are producing as much fuel as possible to take advantage of rising profit margins, adding extra volumes to the market. Taken together, these factors have helped ease some pressure on the diesel market, although the danger has not passed, given threats to supplies from the Middle East and Russia, as well as the possibility of lower temperatures in the coming months.

An agreement to reopen the Strait of Hormuz is considered crucial to any easing of the crisis. However, according to Schuster of Kuehne + Nagel, any change in shipping through the Strait could take up to six months to be reflected in diesel prices in Europe.

“I am very concerned that, so long after the beginning of the full-scale invasion of Ukraine, we are still simply changing the source of our dependence,” Swedish Energy Minister Ebba Busch told reporters in October. “Given the US involvement around the Strait of Hormuz, this shift has proved problematic, to say the least.”

A combination of a drastic reduction in industrial energy demand and help from “Mother Nature” enabled Europe to get through the winter of 2022-2023, thanks to mild temperatures, according to Corbeau. However, that reduction in demand also caused some permanent damage, and Europe cannot afford to lose any more industrial production.

“It is not as though, just before the war in Iran, we were in an excellent position where energy problems had been resolved and we were enjoying internationally competitive prices,” said Nikos Keramidas, general manager for European Affairs at Metlen Energy & Metals, which operates the EU’s only fully integrated aluminium production facility in Greece. “We certainly hope that some measures will be taken to limit these impacts.”

Keramidas is calling for greater flexibility in EU state aid rules. Otherwise, he warned, “I cannot imagine that we will not see more closures in Europe.”

The European Union is seeking to ensure that this will be Europe’s last energy crisis, banking on the rapid expansion of renewable energy to free itself from dependence on imported fossil fuels. Its own forecasts indicate a significant reduction in natural gas demand over the coming years, while it is attempting to accelerate the electrification of the energy system.

“We cannot change things overnight, but I believe we could do more,” said Siur Jensen, head of markets at Swedish energy company Vattenfall AB. “I believe that within perhaps just five years, we could essentially eliminate almost all LNG imports.”

For some, however, that will be too late. Porcelain manufacturer Kahla Porzellan, in the eastern German state of Thuringia, has been producing tableware featuring Baroque and Art Deco designs for almost two centuries. But its monthly natural gas bill recently reached as much as €180,000, accounting for 70% of its operating costs, according to a statement by the company’s insolvency administrator. It will cease operations by the end of the year, leaving 100 employees out of work. “The recent increase in energy costs was significant,” insolvency administrator Rolf Rombach told Bloomberg. “It was the final nail in the coffin.”