How the Iran Conflict is Affecting Europe's Economy and Gas Prices in Austria

The Strait of Hormuz is at the center of global concern. This strait, just 33 kilometers wide, between Iran and Oman, is the bottleneck of the world’s energy supply. Every day, around 20 million barrels of crude oil and about one-fifth of the world’s traded liquefied natural gas (LNG) pass through this passage.

Johannes Mayer, chief economist at E-Control, estimates the potential impact of a disruption at 1,000 terawatt-hours of gas—a scale equivalent to the loss of all Russian pipeline supplies. Yet experts offer cautious reassurance: Unlike during the 2022 crisis, Europe is now better diversified. “Thanks to LNG, the volumes are available on the world market,” emphasizes E-Control board member Alfons Haber. While a blockade of the strait would shock the market, the expectation is that prices would fall just as quickly upon reopening as they rose.

The “pocket money” duel: Who’s profiting from fuel?

While global politics focuses on sea routes, a “distribution war” is raging at the gas pump in Austria. The average diesel price reached 1.988 euros per liter on Monday. OMV CEO Alfred Stern accuses the state of massively enriching itself through taxes. According to Stern, about 90 cents of every 1.70 euros per liter of gasoline goes toward taxes.

Finance Minister Markus Marterbauer counters this, as reported by ORF. The state does not earn “pocket change.” Since the mineral oil tax (MöSt) and the CO2 tax are so-called volume-based taxes, fixed amounts per liter flow to the tax office, regardless of the price. Only the value-added tax (VAT) increases proportionally, which, according to Marterbauer, brings the state just 1.3 cents per liter in additional revenue. “The refineries are the ones pocketing the small change,” says the minister, citing reports from the Federal Competition Authority that suggest increased margins for manufacturers.

The Electricity Market: Fixed Prices as a Shield

For households, E-Control’s message is clear: Those who can should switch to fixed-price contracts now. Wolfgang Urbantschitsch, who took stock after ten years in office, recommends offers around ten cents net per kilowatt-hour.

The background is the merit-order principle. Under this system, the most expensive power plant (usually gas-fired plants)—the one just barely needed to meet demand—determines the price for the entire market. Since the price of gas has “skyrocketed” due to tensions in Iran, it inevitably drives up the price of electricity.

When “Black Gold” Turns Off the Money Tap

While Austrians argue over cents at the gas pump, a far more dangerous crisis is brewing on global financial markets, as Ryan C. Smith, an economic historian at OilPrice.com, analyzes. A massive credit crunch. The war in Iran is disrupting the so-called petro-capital cycle—that vital cycle in which oil revenues from the Gulf states flow directly back into global financial markets.

Since the 1973 oil shock, Western financial markets have relied on the Gulf monarchies to reinvest their massive profits into international banks and funds. These cash injections keep the global machinery running smoothly. But with the closure of the Strait of Hormuz and attacks on infrastructure, this flow is drying up.

Particularly explosive: the stability of financial hubs like Dubai is gone. As recently as November 2025, the financial sector of the United Arab Emirates held an estimated $1.4 trillion in assets. With the drone attacks on the Dubai International Finance Center on March 13 and the decision by major banks such as HSBC and Citigroup to close their offices or shift to remote work, this capital is now effectively frozen. Analysts are already drawing parallels to the debt crisis of 1982. At that time, an oil shock and the Iran-Iraq War led Gulf states to withdraw their capital to finance their own war efforts, resulting in credit defaults worldwide.

Today, these shocks are hitting a market that is already under pressure from inflation and high government debt. If “petrodollars” can no longer be recycled, interest rates on loans will rise far beyond the level of central bank rate hikes. For businesses and individual borrowers, this means that money is not only becoming more expensive—it is becoming scarce. “Investors should brace for increased volatility in smaller, ‘hungrier’ markets,” warns financial expert Ryan Smith. The oil price shock, he says, is merely the first domino in a chain of economic shocks.

Von der Leyen’s Master Plan: Moving Away from Gas Dependency

In Brussels, Commission President Ursula von der Leyen is working on a long-term solution to this dilemma. In a letter to EU leaders, she called for the expansion of PPAs. Power Purchase Agreements are long-term supply contracts between generators (e.g., wind farms) and industry that stabilize prices over years and decouple them from the volatile gas market.

Nuclear power is also being considered as a buffer, as existing nuclear power plants are to remain online longer to secure the base load. To keep the industry competitive, the costs of electricity transmission are to be subsidized or capped by the government.

An “interesting experiment”

Until April 12, the regulation in Austria still stipulates that gas station prices may only be raised three times a week. IHS Chief Holger Bonin sees this as an “interesting experiment” that could force consumers to refuel more consciously. Yet the real decision regarding Austria’s prosperity is currently not being made in the Ministry of Finance in Vienna, but in the diplomatic backrooms between Washington, Tel Aviv, and Tehran.

As Foreign Affairs Commissioner Kaja Kallas emphasizes, a return to energy dependence on autocratic systems—whether Russia or the Middle East—is no longer an option. Europe must take the painful path to independence, even if the price for it must currently be paid at the gas pump.

BMF

E-Control

European Commission

OMV

Statistics Austria

IHS