Europe’s efforts to reduce vulnerability to energy supply disruptions have seen progress since the 2022 crisis triggered by Russia’s invasion of Ukraine. However, the continent now confronts a new challenge: persistently high energy prices that threaten its industrial sector and broader economic stability.

The recent conflict involving Iran, which began on February 28, has underscored Europe’s ongoing dependence on imported fossil fuels and its susceptibility to global market fluctuations. Despite this, the region has so far managed the effects of the crisis relatively well. This resilience is largely attributed to significant investments in liquefied natural gas (LNG) infrastructure, including new terminals, stricter gas storage requirements, and increased imports of LNG from the United States. While natural gas prices have risen, Europe has avoided the severe energy emergency experienced during 2022.

Nevertheless, the Iran conflict highlights Europe’s exposure to risks such as maritime shipping disruptions, geopolitical instability, and growing competition from Asian countries for LNG supplies. Because electricity prices remain closely tied to imported fossil fuel costs, any external disturbance can rapidly translate into higher prices for both households and industry.

By the end of 2025, European natural gas prices had decreased by 34 percent and electricity prices by 14 percent compared to their 2022 averages. However, these rates still remained approximately 50 percent and 38 percent above pre-crisis levels, respectively. Elevated energy costs have contributed to significant economic consequences, including the loss of over one million industrial jobs across Europe between 2019 and 2023. Germany, a key driver of European economic growth, alone saw a reduction of 143,000 industrial jobs in 2025.

This downturn in industrial employment reflects a combination of factors such as pandemic-related disruptions, high inflation, and intensified competition from China in advanced manufacturing. However, rising energy prices have played a pivotal role by undermining the competitiveness of European manufacturers who face difficulties competing with producers in regions with lower energy costs.

The risk of accelerated deindustrialization looms if affordable electricity remains elusive. Findings from the 2026 Energy and Climate Security Risk Index (ECSRI), developed by the Centre for the Study of Democracy, indicate that concerns over energy affordability have surpassed geopolitical factors as the primary risk to Europe’s energy security. Although affordability risks declined by 13 percent from 2024 to 2025, they remained considerably higher than levels observed before 2022.

This challenge is especially pronounced in European countries heavily reliant on fossil fuels, such as Poland, Bulgaria, Romania, and Greece, where structurally elevated energy costs are likely to impede industrial competitiveness over the long term. As Europe continues its transition to cleaner energy sources, balancing energy security, affordability, and economic resilience remains a critical policy objective.