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In the wake of the Iran war, the risk of energy shortages is increasing. Oil and gas prices have already risen significantly, clouding the economic outlook. “The new energy shock is slowing Europe’s economic recovery, but it will not bring it to an end,” comments Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. “The biggest risk lies less in a physical shortage of energy and more in higher prices, uncertainty, and a more challenging inflation outlook.”

The escalation in the Middle East is effectively closing one of the world’s key energy bottlenecks. With the blockade of the Strait of Hormuz and the disruption of QatarEnergy facilities, not only oil but particularly LNG supplies are coming under pressure – with immediate consequences for Europe. “The global LNG market is tight and has very limited reserve capacity available at short notice,” Fischer explains. Qatar accounts for a substantial share of global LNG supply, which cannot easily be replaced by other producers in the event of disruptions.

Unlike in 2022, this shock is hitting markets more abruptly, triggering much stronger price reactions. This is clearly visible in Europe: the TTF natural gas future is currently trading above €50/MWh, almost twice as high as in December. “The renewed sharp price movement since the beginning of March signals that the market is pricing in not just a temporary event, but a serious supply risk,” Fischer says.

This is particularly relevant for Europe, as the continent remains highly dependent on the global liquefied natural gas (LNG) market. If LNG supplies from the Gulf decline, competition for alternative deliveries – especially from the United States – will automatically intensify. “Europe therefore risks facing another imported energy price shock, even if physical supply is still considered secure in the short term,” Fischer notes.

For Germany, the shock comes at an unfavourable moment. Gas storage levels were already significantly lower than in previous years before the escalation: on 9 March, storage facilities were only 21.5% full. “While a low storage level does not automatically imply an acute shortage,” Fischer explains, “it does make the system more vulnerable to new external shocks and makes it more difficult to refill storage cost-efficiently for the coming winter.”

Economically, the energy shock is hitting an economy that had only just begun to stabilise cautiously. Higher gas and energy prices are placing a burden on industry and private households. In addition, there is a pronounced uncertainty effect: in an environment of geopolitical escalation and volatile energy prices, companies typically hold back on investment.

The recent rise in gas prices also increases the risk of a renewed slight increase in inflation in Europe and Germany – even if economic growth remains subdued at the same time. For the European Central Bank, this intensifies the familiar dilemma between weaker growth and rising price pressures.

“The current energy shock is therefore primarily an inflation and uncertainty shock,” Fischer says, “but not necessarily the beginning of a deep recession.” Fischer continues to expect the economy in Europe and Germany to stabilise moderately aside from the geopolitical escalation. Fiscal stimulus, improved financing conditions and a gradual cyclical recovery continue to support a more constructive outlook over the course of the year. The Iran war does not fundamentally call this perspective into question but temporarily overshadows it through the energy channel.

“For investment portfolios, this primarily means more volatility in the short term, higher inflation expectations and a more challenging environment for interest-rate-sensitive segments,” Fischer explains. This highlights the importance of broadly diversified investment strategies as well as a focus on quality, pricing power and robust business models. “As long as the conflict does not evolve into a prolonged global energy shock, we see no reason to abandon our fundamentally constructive medium-term outlook,” Fischer concludes.