Europe's power prices split as renewables buffer Iran war shock

Two months after the United States and Israel launched strikes on Iran on Feb. 28, Europe's electricity markets are splitting along a familiar fault line: countries dependent on imported fossil fuels are paying sharply more, while those with higher renewable output are weathering the storm.

Italy, which generates more than 40 percent of its electricity from gas, has seen its benchmark wholesale contract climb more than 20 percent since the war began, according to Reuters. In Germany, the benchmark has risen over 15 percent. Across the continent, the disruption to oil and gas flows — compounded by the closure of the Strait of Hormuz — has revived memories of the energy shock that followed Russia's invasion of Ukraine in 2022.

Renewables as Buffer

Countries that invested heavily in clean energy are faring markedly better. In Spain, where renewables now account for nearly 60 percent of total electricity generation, wholesale prices have actually fallen since the conflict began. Albania, which draws more than 90 percent of its power from hydroelectric dams along the Drin River, recorded lower average prices in March compared with the previous year. France, reliant on nuclear energy for about 70 percent of its output, has seen price increases less than half of Italy's.

"The countries with the least flexibility and the greatest marginal dependence on imported fuels are seeing the strongest impact in volatility and peak pricing," said Satyam Singh, an analyst at the energy research firm Rystad, in comments reported by Reuters.

Households and Governments Under Pressure

The price shock is now filtering through to consumers and public budgets. Eurozone inflation rose to 2.5 percent in March, up from 1.9 percent in February, driven by a 4.9 percent jump in energy costs, according to Eurostat figures. In Cyprus, which pays some of the highest electricity prices in the EU, the dominant power provider expects household bills to rise as much as 20 percent by August. The Cypriot government has already slashed VAT on electricity from 19 percent to 9 percent and is subsidizing tourism-sector salaries.

On April 22, the European Commission unveiled its "AccelerateEU" package, a set of measures designed to cut electricity taxes, coordinate summer gas storage refills, and accelerate the transition away from fossil fuels. The plan allows member states to introduce energy vouchers and lower excise duties for vulnerable households, with legislative proposals on taxation expected in May. The Commission cast the crisis as reinforcement for its long-term electrification strategy rather than a reason to retreat from climate goals.

A Fragile Outlook

A ceasefire has paused active hostilities, but the blockade of fuel shipments through the Strait of Hormuz continues to strain global markets. Analysts warn that even if the conflict ends, elevated prices could persist. European gas futures, which surged from about €35.50 per megawatt-hour before the war to a peak of nearly €62 in mid-March, had settled around €44 by mid-April — still well above pre-war levels.

In the Italian town of Castiglion Fiorentino, baker Nico Vanni summed up the anxiety shared by small businesses across the continent. "We can hold out for a few months, but not for long," he told Reuters. "The real risk is that we will have to intervene on staffing."