A prolonged closure of the Strait of Hormuz could raise European power prices by €45 per megawatt-hour by late 2026 and throughout 2027, according to new analysis from Wood Mackenzie published in May 2026. The research examines how continued Middle East tensions and disruptions to liquified natural gas shipments through the strait would affect European gas and power markets. While the firm's base case assumes the conflict won't significantly change European power fundamentals despite short-term volatility, analysts developed two alternative scenarios to model outcomes if the crisis persists.
Under Wood Mackenzie's Summer Settlement scenario, where the strait reopens by September after a prolonged summer closure, European electricity prices would climb €13 per megawatt-hour above baseline projections in 2027. Gas prices would stay elevated between 2026 and 2029 before returning to normal levels in 2030. The Extended Disruption scenario models a more severe outcome, with passage through the strait restored only at year-end 2026. In this case, average European power prices rise approximately €45 per megawatt-hour higher than baseline by the end of 2026 and through 2027, easing by 2031. A brief economic recession in the second half of 2026 would eliminate €500 billion in annual GDP, cutting baseline electricity consumption. Italy and Ireland would experience the steepest price increases under the extended disruption, with costs climbing between €33 and €19 per megawatt-hour over the initial five years due to their heavy reliance on imported gas.
The report finds that recurring ceasefire breakdowns and misaligned US–Israeli objectives continue to prevent a durable peace agreement and the reopening of the strait. According to the analysis, the European gas market was already tight before Middle East supply disruptions began. The research states that even under the Extended Disruption scenario, power prices would remain below the peaks seen after Russia's invasion of Ukraine, reducing the likelihood of market interventions similar to those implemented in 2022-23.
The mechanism behind the price changes centers on how consumers respond to sustained gas cost increases. Wood Mackenzie's analysis explains that prolonged disruption raises gas prices by €50 per megawatt-hour in the near term, but demand destruction eventually pushes prices back to baseline levels by 2030 under the Summer Settlement scenario and even lower by the mid-2030s under Extended Disruption. In the extended scenario, transport and heating sectors would accelerate electrification to avoid the consequences of fossil-fuel supply interruptions, with consumers bringing forward adoption of electric vehicles and heat pumps. The global LNG market would be fundamentally reshaped, with lower supply, demand destruction, and heightened volatility. Though GDP returns to pre-crisis levels in 2027, the economic damage creates lasting impacts on power demand through the mid-2030s and beyond.