Energy shock: why oil and gas prices have risen less than expected

ECB staff blog comparing the 2026 Iran/Hormuz energy shock with 2022 Ukraine. Core message: the physical disruption is an order of magnitude larger (14 mb/d, 14% of global oil supply, versus about 1% in 2022) but the price response is far smaller, because markets entered 2026 well supplied, European gas storage and diversification were better, and Asian LNG demand is more flexible. Policy read is implicit rather than stated: the energy leg of the inflation impulse is running well below the historical elasticity, which argues against treating this as a 2022 repeat. It is staff analysis, not a Governing Council signal.

What’s new: Little that is new to price. The muted spot response is observable. What the blog adds is quantification and attribution: the shock is 14% of global oil supply against a historical elasticity implying up to a 105% price rise, yet oil is only 29% above pre-conflict; TTF is +53% versus a model-implied 81%. The genuinely useful bits are the curve details: 2026 saw steeper backwardation than 2022 (front-end priced tighter, back end barely moved), and the JKM-TTF spread turned positive but small, so Asia is not bidding cargoes away from Europe. Also flagged, almost in passing, is the renewed price surge from July US-Iran strikes.

KEY FINDINGS

• Realised oil supply loss of about 14 mb/d, 14% of global supply, against roughly 1% in the Ukraine episode, yet oil is only 29% above pre-conflict at about USD 94 after peaking above +50%. Confirms the energy pass-through into HICP is far smaller than the physical shock implies, taking pressure off the ECB to lean against a supply-driven inflation impulse.
• Price gains are concentrated in short-dated contracts, pushing the curve into steeper backwardation than in 2022. Near-term upside risk is priced but the long end is not, so any energy-driven inflation impulse should be read as transitory unless Hormuz stays shut.
• Gas futures moved almost not at all further out: one and two-year TTF futures rose 12% and 2%, versus 38% and 74% in 2022. Direct read for euro area inflation expectations: no material term structure damage in gas, unlike 2022.
• The TTF move is attributed largely to precautionary demand rather than physical loss, since Europe's direct Middle East LNG dependence is limited, and the JKM-TTF spread turned only modestly positive. Suggests the gas price premium unwinds quickly on de-escalation rather than requiring demand destruction.
• Two-sided risk stated explicitly: a prolonged closure depletes buffers and revives upward pressure, while a sustained reopening could push prices sharply lower given expected 2026 supply surpluses. The July resumption of US-Iran strikes triggered a renewed surge. The desk should treat the energy input to the ECB reaction function as event-driven and asymmetric, not as a settled disinflationary story.

FROM THE DOCUMENT

By historical standards, a disruption of this magnitude would typically push up oil prices by as much as 105% (Caldara et al. 2019).

And yet, by early June, oil prices stood at only around USD 94 per barrel, 29% above their pre-conflict level, after retreating from a peak increase of more than 50%.

For instance, one and two-year futures rose by 12% and 2% during the Iran war, compared with 38% and 74% during the Ukraine conflict (Chart 2, panel b).

A prolonged closure would gradually deplete the existing buffers and global inventories while forcing markets to abandon expectations of a rapid resolution, thus increasing the risk of renewed upward price pressures.