Europe and the Gulf have untapped strengths to counter great-power chaos
It’s a confusing moment in energy markets. International Energy Agency head Fatih Birol calls the closure of the Strait of Hormuz “the greatest energy security threat in history.” Energy markets are mostly shrugging it off, for now. Brent prices are up about 67 percent from $62 per barrel in early January, but are still well below (in real terms) the levels they reached during the 2022 energy crisis in the wake of Russia’s full-scale invasion of Ukraine. Are energy markets driving into a wall, or are concerns about the effect of the Iran war on global energy overblown?
It’s useful to think in probabilities. It’s possible that the crisis will quickly conclude on favorable terms. While this scenario would be welcome, experts such as Nate Swanson assess that Tehran believes time is on its side.
The balance of evidence suggests a continued crisis. Fundamentals and arithmetic will likely prove inescapable. About 25 percent of the world’s seaborne oil transits the Strait of Hormuz in peacetime, and other commodities including liquefied natural gas, fertilizer, sulfur, and helium face severe pressure from the conflict. The IEA estimated in mid-May that cumulative supply losses from Gulf producers already exceed 1 billion barrels. By September, at current rates, global stockpiles will be drawn down to their operational floors, with little buffer left for further shocks; data released yesterday by the US Energy Information Agency shows the fastest eight-week drawdown in modern US history. Oil rationing is an appropriate policy lever and is already occurring, in China and elsewhere, but cannot be sustained for long without severe economic pain.
While an energy crisis is not inevitable, the warning lights are flashing red. For two months, the US has punted on a hellish choice: find a nuclear-focused agreement with Iran or conduct an immensely costly full-scale operation designed to topple the regime, as Danny Citrinowicz wrote in March. But if oil prices are sharply higher by late summer, Washington will be forced to resolve the question.
Ahead of NATO's July 7-8 Ankara summit, President Recep Tayyip Erdogan framed Turkey's expectations largely in diplomatic terms—emphasizing Alliance cohesion. In addition to the thirty-two NATO leaders, Ankara will also host officials from Alliance partners in the Gulf. The first institutionalized NATO-Gulf partnership came together when Turkey last hosted the NATO Summit in 2004, with little development since. Speaking to NATO parliamentarians in Istanbul, Erdogan called for outcomes that protect members' national security concerns while reinforcing solidarity, particularly amid friction over burden-sharing, defense spending, and cooperation on the Strait of Hormuz. He also noted Iran, Ukraine, and Gaza would feature in summit discussions.
Grady Wilson, Deputy Director, Turkey Program, Atlantic Council, says:
“In Ankara, the time and place is right to re-envision the security partnership between NATO and the Gulf. As a lynchpin between Europe and the Middle East and with security influence expanding in all directions, Turkey is the ideal forum to re-energize the conversations that began back in 2004 in Istanbul. These discussions have seldom been more timely as the Iran war exposed the deep economic and physical security concerns shared by Europe and Gulf countries, presenting avenues of cooperation including maritime security, ballistic missile defense, and asymmetric warfare.”
The US and Iran have agreed to "stand down" after renewed strikes threatened the ceasefire signed less than two weeks earlier. The US maintains that shipping could resume freely and talks toward a permanent end to the war will continue. Fighting flared after an Iranian projectile hit a cargo ship in the Strait of Hormuz, prompting US strikes on Iranian targets and Iranian retaliation against US bases in Kuwait and Bahrain, though no US casualties were reported. The two sides held talks in Doha with little progress as of Wednesday. The deployment of a jointly led French-British deployment to Hormuz, consisting of around a dozen militaries, hinges on the ceasefire holding.
Jonathan Panikoff, Senior Director, Scowcroft Middle East Security Initiative, Atlantic Council, says:
“After meeting with senior French officials in Paris a few weeks ago, it's clear a UK-French-led mission to secure freedom of navigation in the Strait of Hormuz could launch tomorrow. But Europeans are still waiting on a durable ceasefire—and, more importantly, on Iranian acquiescence, which may never come.”
Analysts cut oil price forecasts, citing faster-than-expected recovery of traffic through the Strait of Hormuz alongside strong US supply and weak Chinese demand. Brent crude is now projected to average $75/barrel in Q3-Q4 2026, with 2027 outlooks also reduced to around $70 by year-end. Brent futures have fallen roughly 30 percent this quarter following a US-Iran interim peace deal that's restored Hormuz traffic. Morgan Stanley counted thirty-five tankers exiting the strait on June 25—back to pre-conflict levels—noting flows only need to reach 65 percent of normal levels to balance 2027's market. Goldman Sachs has similarly trimmed its forecasts as analysts conclude the market has cycled back toward oversupply.
Fritz Lodge, Principal at The Scowcroft Group, says:
“Some strait traffic is returning, but the long-term question is when do shippers and Gulf producers see a reliable deal that gives them confidence that pre-war traffic will resume and repairs can start across the Gulf to get back to pre-war production. Without that certainty, we may see an oil glut now as stranded ships exit, followed by tightness later.”
European Central Bank (ECB) President Christine Lagarde said the eurozone has built greater economic resilience, giving the central bank more room to raise rates without triggering financial stress. Speaking at the ECB forum in Sintra, Portugal, she warned that the bloc will likely face more frequent inflation shocks ahead, often falling into an “intermediate zone” between disturbances that can be ignored and those requiring forceful action. This resilience stems from a strengthened monetary policy toolbox, improved eurozone financial architecture, and joint bank supervision. Lagarde also said markets price in policy moves ahead of time, easing pressure on the ECB to act hastily—as seen when markets anticipated June's rate hike, the first by a major central bank following the Iran-related energy shock, well before it occurred.
Charles Lichfield, Director, Economic Foresight & Analysis, Atlantic Council, says:
“Lagarde’s comments focused on the financial stability implications of hiking rather than growth, where the picture for Europe is less rosy. The EU remains in a period of very subdued, sub-1 percent growth, with the notable exception of Spain."
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