Europe has significantly reduced its dependence on Russian energy since the 2022 energy crisis, but it now faces a different and potentially more damaging challenge: persistently high energy prices that are weakening industrial competitiveness and threatening long term economic growth.
The latest tensions surrounding Iran and the Strait of Hormuz have highlighted that Europe remains vulnerable to disruptions in global fossil fuel markets despite major investments in liquefied natural gas infrastructure, gas storage, and diversified energy imports. While Europe has largely avoided a repeat of the severe energy shock experienced after Russia’s invasion of Ukraine, rising geopolitical risks continue to expose structural weaknesses in the continent’s energy system.
As long as imported fossil fuels continue to determine electricity prices, every geopolitical crisis has the potential to translate into higher production costs for businesses and higher utility bills for households.
Energy Prices Continue to Burden European Industry
Although European natural gas and electricity prices had fallen substantially from their 2022 peaks by the end of 2025, they remained well above prewar levels. Gas prices were roughly 50 percent higher than before the Ukraine conflict, while electricity prices remained about 38 percent above historical averages.
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These elevated costs have already had significant economic consequences.
Europe lost more than one million industrial jobs between 2019 and 2023, reflecting the combined effects of inflation, global supply chain disruptions, rising competition from China, and expensive energy. Germany, traditionally Europe’s industrial powerhouse, reportedly lost another 143,000 manufacturing jobs in 2025 alone.
High electricity prices have made European manufacturers less competitive compared with rivals in regions where energy remains significantly cheaper, increasing concerns over accelerating deindustrialization.
Affordable Energy Emerging as Europe’s Biggest Security Issue
New assessments suggest affordability has overtaken supply security as Europe’s primary energy concern.
According to the 2026 Energy and Climate Security Risk Index, developed by the Center for the Study of Democracy, countries that remain heavily dependent on fossil fuels, including Poland, Bulgaria, Romania, and Greece, continue to face structurally higher energy costs that undermine industrial competitiveness.
By contrast, countries such as Sweden, Finland, and France have built more resilient energy systems by combining renewable energy with stable low carbon power sources such as nuclear energy and hydropower.
During disruptions to LNG shipments caused by the Iran conflict earlier this year, wholesale electricity prices in Germany remained substantially higher than those in Finland, Sweden, and France. The difference reflected electricity systems that rely less on natural gas to determine market prices.
These examples suggest that energy resilience increasingly depends on maintaining a balanced mix of renewable and reliable low carbon electricity generation rather than relying on a single technology.
Renewable Expansion Creates New Infrastructure Challenges
Europe’s renewable energy sector has expanded rapidly over recent years.
Solar capacity has multiplied across several Central and Eastern European countries, while battery storage has expanded dramatically throughout the European Union.
However, the rapid integration of intermittent renewable energy has increased pressure on electricity grids, storage capacity, and transmission infrastructure. Events such as last year’s Iberian Peninsula blackout demonstrated that renewable expansion alone cannot guarantee energy security without corresponding investments in grid modernization and backup generation.
Meanwhile, nuclear power projects continue to face lengthy approval procedures, financing difficulties, regulatory fragmentation, and supply chain constraints that slow deployment.
Experts argue that greater European coordination could accelerate deployment by standardizing project approvals, financing models, and construction practices across member states.
Artificial Intelligence Raises the Stakes
Europe’s energy challenge extends beyond traditional industries.
The rapid expansion of artificial intelligence, advanced semiconductor manufacturing, and data centers is dramatically increasing electricity demand. These industries require reliable, affordable, and low carbon electricity to remain globally competitive.
At the same time, Europe continues to depend heavily on Chinese manufacturing for batteries, semiconductors, critical minerals, and grid technologies. Without diversifying these supply chains, Europe risks replacing one strategic dependency with another.
Ensuring sufficient electricity generation has therefore become closely linked to Europe’s ambitions for technological leadership and economic sovereignty.
Analysis
Europe’s energy transition is no longer driven solely by climate objectives. It has evolved into a strategic competition over industrial competitiveness, economic resilience, and technological leadership. While the continent has successfully reduced its dependence on Russian energy supplies, high electricity costs continue to erode manufacturing strength and investment attractiveness.
The debate is also shifting beyond the traditional choice between nuclear power and renewable energy. Countries that combine multiple low carbon energy sources with strong grid infrastructure have demonstrated greater resilience during periods of geopolitical disruption. This suggests Europe’s future competitiveness will depend less on ideology and more on building diversified, reliable, and affordable energy systems.
The rise of artificial intelligence further increases the urgency. Nations capable of delivering abundant low cost electricity will be better positioned to attract advanced industries, while those struggling with expensive and unreliable power risk losing investment, innovation, and strategic influence. Europe’s energy transition has therefore become not only an environmental challenge but also a defining economic and geopolitical race.
With information from Reuters.
