Europe had barely begun to recover from the last energy shock and the wave of inflation triggered by Russia's invasion of Ukraine when a new blow arrived — this time from the Middle East. The Strait of Hormuz, one of the world's most important trade corridors, was closed for weeks due to military conflict.

The consequences were swift. We soon saw how abruptly energy prices can swing, how fragile our usual supply chains are, and how extensively disruptions in the supply of fuel, fertilizers, and critical raw materials affect us.

The European Union was not a party to this conflict, yet its effects reached us quickly and painfully. We saw it immediately on the price boards at gas stations and heard about declining availability of goods. Farmers are being hit not only by more expensive diesel but also by fertilizer shortages; bus companies are being forced to cut routes, and airlines to cancel flights. Energy‑intensive industries are seriously concerned that they may have to scale back production.

The longer the Strait of Hormuz remains closed, the greater the impact. But even if it were to reopen immediately, recovery would take time, and we must prepare for second‑ and third‑round economic effects.

A rapid reopening of the Strait of Hormuz could ease tensions, but Europe's economic security cannot rest solely on the hope that crises will resolve themselves. If energy can be turned into a weapon, Europe must reduce its critical dependencies as quickly as possible and decisively take energy security into its own hands.

The economic consequences of dependence

We remain heavily dependent on imported energy and its price. In 2025, the European Union imported energy worth €336.7 billion. Due to the sharp rise in energy prices, fossil fuel import costs for European countries increased by more than €22 billion in the first 44 days of the conflict alone. These costs inevitably cascade through the economy, painfully affecting both household budgets and the competitiveness of businesses.

The effects of nearly two months of conflict are becoming increasingly visible in economic indicators. Inflation is accelerating and economic growth is slowing. Interest rate hikes are once again on the agenda, along with the risk of an inflation‑wage spiral. Already, the situation is marked by high uncertainty and elevated risk assessments.

At the same time, it is encouraging to recall that after the 2022 shock, the EU managed to reduce gas demand by approximately 18 percent in just 7–8 months (from August 2022 to March 2023). This shows that rapid change is possible when there is firm political will and coordinated action. Still, it is clear that temporary savings measures cannot replace structural solutions.

A "green dream" or practical economic policy?

The surge in energy prices has forced the European Commission to draw up an energy action plan, AccelerateEU, whose aim is not merely to ease price pressure but to fundamentally transform Europe's energy system. European Energy Commissioner Dan Jørgensen has described the current situation as a serious energy crisis—possibly even broader than the crises of 1973 and 2022 combined. Europe therefore can no longer afford dependence on imported fossil fuels.

The action plan places electrification and domestic renewable sources at the center of the energy future. Comparative analysis shows that in countries where the share of renewables and nuclear energy is higher, electricity prices are generally lower.

The transition to domestic and clean energy may not be painless or cheap for many, but in the longer term it helps reduce constant exposure to the volatility of global markets. Currently, we often pay more in taxes for electricity than for gas — by some estimates, as much as twice as much. This sends the wrong signal. If we want industry and households to switch from imported gas to domestic electricity, the tax system must encourage it.

According to the Commission's assessment, replacing gas and oil heating with technologies such as heat pumps can significantly reduce energy consumption in buildings. In the Estonian context, this means that every apartment building taking this step reduces both its costs and its dependence on imported fuel.

The same applies to transportation. Every kilometer driven on electricity reduces dependence on oil and, at current oil prices, is even cheaper than driving on gasoline. However, purchasing an electric vehicle is expensive, the charging network is still relatively sparse, and the price differential may not remain the same. In the long term, we must certainly look at total life‑cycle costs (fuel, maintenance, taxes, public transport alternatives) and seek ways to reduce dependence on fuel imports.

Europe needs approximately €660 billion in investments by 2030 to transform its energy system. Key areas include generation, grids, storage, and smart management. The investment need is impressive, but at the same time, European institutional investors manage more than €12 trillion in assets. The question therefore is whether we can create a stable and predictable framework that channels this capital into energy projects.

In Estonia, initial pilot projects already show that with deeper drilling and smart system design, it is possible to obtain stable heat without burning gas. If our regulations, planning processes, and permitting procedures drag on, capital will simply flow to places where projects can be completed faster.

Rapid response across Europe

Long‑term reforms do not resolve immediate crises. That is why many European countries have responded to the sharp rise in energy prices with quick, short‑term measures. The most common step has been temporary tax reductions. Spain, for example, cut fuel VAT from 21 percent to 10 percent and reduced the tax burden on electricity. Italy reduced excise taxes by up to €0.25 per liter for six weeks. Poland cut VAT from 23 percent to 8 percent, and Hungary lowered fuel excise taxes by 19 forints — about €0.05 — per liter to ease the immediate impact of price increases.

These decisions are fast and politically visible, but largely broad‑based, meaning the relief goes to all fuel buyers.

Another approach has been more targeted support, also limited in time. Bulgaria, for instance, pays vulnerable households a monthly subsidy of about €20 for at least four months. Greece offers fuel vouchers worth €50–60 per vehicle, along with separate support for agriculture and the transport sector. France compensates micro‑ and small enterprises up to €0.20 per liter for one month and exempts agriculture from diesel excise taxes for the same period. Ireland extended a monthly fuel allowance of €152 until at least the end of June, while Croatia is paying vulnerable households a monthly benefit of nearly €70 through the fall.

Third, there is a focus on security of supply. Countries are coordinating the filling of gas reserves and preparing, if necessary, to draw on strategic reserves. European gas storage facilities are currently only about 31 percent full, but before winter this figure must rise to at least 80 percent. If countries begin purchasing reserves on the market simultaneously while competing with one another, everyone will ultimately pay a much higher price. That is why joint action is needed both in gas procurement and in managing strategic oil reserves — much as was done with the procurement of COVID‑19 vaccines.

Is Estonia falling behind?

Against this backdrop, Estonia's decision to limit its response to merely postponing an excise tax increase appears conspicuously modest. It may prove short‑sighted, as it puts our companies at a competitive disadvantage compared with countries where support measures are stronger.

We cannot continue to refuse support, Tõnisson‑style, by arguing that "there is no alternative." Instead, we must find smart and temporary ways to help our households and businesses weather this crisis — especially since higher prices have also boosted state revenues through VAT.

Estonia does not have to choose between a responsible budget and people's ability to cope or companies' competitiveness. Smart solutions make it possible to achieve both. Temporary and rapid measures — such as partial compensation of energy costs for the most vulnerable households, temporary tax relief, or support mechanisms for energy‑intensive companies — are investments in economic resilience.

Equally important is accelerating permitting procedures so that new renewable energy projects and storage solutions can reach the market as quickly as possible. Then we will not become a victim of this crisis but will use it as a turning point to build a stronger and more self‑reliant energy economy. 

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