Europe’s Energy Shock: Higher Prices, New Risks and the Infrastructure Response

Executive Summary 

• Europe has reduced Russian energy dependence, but power and gas prices remain structurally higher due to reliance on global LNG and long‑haul refined‑fuel imports. 
• Energy security is now shaped by system‑wide constraints, including U.S. LNG capacity, Middle Eastern instability and exposure to maritime chokepoints. 
• Long‑term resilience depends on sustained investment in grids, storage, interconnectors and efficiency to reduce import exposure and improve flexibility. 

Europe’s ‘good news’ story hides a lingering price shock 

Europe’s response to Russia’s full-scale invasion of Ukraine is often framed as a rare energy policy success. In less than two years, the European Union reduced its reliance on Russian gas from more than 40% of supply to 10-12%, filled underground storage to record levels and curbed demand through efficiency gains and fuel switching. Russian diesel and crude have largely disappeared from direct EU imports, replaced by new suppliers and reconfigured trade routes. 

This progress, however, has not eliminated Europe’s energy vulnerability. Instead, it has coincided with a second, slower-burning shock: escalating confrontation with Iran that threatens tanker traffic through the Strait of Hormuz, disrupts shipping in the Red Sea and complicates the enforcement of sanctions on Iranian crude. Europe’s energy risk is no longer defined by the decisions taken in Moscow alone, but by how a highly interconnected global system of LNG terminals, mega-refineries and geopolitical chokepoints behaves under overlapping shocks from Russia and Iran. 

European industry continues to operate under power and gas prices that are two to four times higher than those faced by many global competitors. Households, meanwhile, are still paying roughly one-third more for each kilowatt-hour of electricity than before the war in Ukraine. Europe has not escaped dependence so much as changed its form, and infrastructure bottlenecks continue to weigh on growth, employment and political stability alike.  

The U.S. has emerged as the EU’s dominant LNG supplier, accounting for well over half of EU LNG imports, while total LNG volumes into Europe have more than doubled relative to pre-2022 levels. Where Europe was once narrowly reliant on a single supplier and a limited number of pipelines and refineries, it is now deeply embedded in a global network of LNG export capacity, distant mega-refineries and vulnerable shipping lanes.  

EU Gas Import by Region and Source (LNG and Piped)
Million Cubic Meter

Refined products: Diesel’s long detour and new chokepoints 

A comparable re-wiring has taken place in oil and refined-product markets. Prior to the war in Ukraine, approximately 40–50% of Europe’s imported diesel came directly from Russia. Since then, Europe has turned to the U.S. Gulf Coast, the Middle East, India and Turkey to cover its structural middle-distillate deficit. Europe has grown especially reliant on the Middle East for jet fuel, with imports representing roughly one-third of European jet fuel consumption.

Diesel Gasoil Loading to Europe
Per Loading Date (Million MT)

Europe now relies on a complex global network of export terminals, refineries, tanker fleets and maritime chokepoints. The nexus of risk has moved from a single supplier to the behavior of the system. The central question of European energy security is no longer whether a pipeline flow will be cut, but how a global logistics network responds to simultaneous shocks – from Russia and Iran to U.S. policy debates – against a backdrop of sustained underinvestment in European energy infrastructure. 

A single, tightly coupled system – with Europe at its center

Having bet heavily on U.S. LNG and long-haul refined-product imports, Europe is also newly sensitive to capacity constraints, U.S. policy decisions and the security of shipping lanes exposed to Iranian and proxy attacks. U.S. LNG export terminals along the Gulf Coast already run close to nameplate capacity. In a world where Asian LNG demand rebounds and Middle Eastern supply is periodically disrupted or repriced by conflict, European buyers will increasingly compete with Asia for finite Atlantic Basin export capacity, not just for spot cargoes.  

At the same time, U.S. export license debates, refinery utilization rates, Gulf Coast hurricane seasons and periodic escalations with Iran that close parts of the Red Sea or raise insurance premia have all become de facto variables in European energy security planning. 

Similar dynamics apply to refined products. Despite demand destruction from higher prices and efficiency gains, Europe remains a significant importer of diesel and jet fuel. Having lost its primary short-haul supplier in Russia, the region now depends more heavily on refineries in Kuwait, Oman, Saudi Arabia, India and the U.S. Gulf. Those barrels typically traverse the Suez Canal or, during periods of heightened risk in the Red Sea, the much longer route around the Cape of Good Hope. A continent that once was supplied within days now finds critical transport fuels exposed to long-distance shipping disruptions far from its shores. 

U.S. LNG Export Capacity and EU Offtake Share

From diversification to real security 

To address these challenges, Europe must treat investment in energy security as a core economic competitiveness priority, not just a crisis-response exercise.  

Current estimates point to hundreds of billions of euros in annual clean-energy investment needs through the 2030s. Of this, roughly €70–100 billion per year will be required for electricity grids alone, with additional tens of billions needed for generation, storage, hydrogen and CO₂ infrastructure.  

Diversifying third-party energy suppliers, while necessary, is not sufficient. We believe achieving lasting energy security will require sustained investment in demand-reduction measures – energy efficiency, electrification and flexible demand – positioned not as optional climate initiatives, but as fundamental resilience assets. Opportunities include retrofit programs that cut gas use in buildings, rapid rollout of heat pumps and electric vehicles, improved use of rail and logistics networks and industrial demand-response programs that can adjust consumption without compromising output. 

Equally important is greater flexibility within Europe’s own borders. While progress on gas interconnectors and reverse-flow capability has improved resilience, meaningful bottlenecks remain, particularly between the Iberian Peninsula and Central and Eastern Europe. A genuinely integrated gas and power market – supported by sufficient transmission, storage and cross-border capacity – would enable the system to route around local shocks, whether they originate at a U.S. LNG plant, a Gulf refinery, or a contested shipping lane. Strategic stockpiles should reflect this new risk map, with increased emphasis on critical refined products such as diesel and jet fuel alongside gas. 

Finally, external energy policy must also be reframed in portfolio terms. This means diversifying not only suppliers, but routes, contract structures and technologies. Long-term LNG contracts can coexist with a clear glide path for gas demand, while partnerships with Gulf producers and North African neighbors can be structured around both security of supply and security of transit. Sanctions policy should follow the same discipline: Each additional restriction on Russian or Iranian flows should be matched by concrete plans for demand reduction, alternative supply or both, rather than an assumption that markets will absorb the shock unaided. 

Financing the infrastructure response 

Against this backdrop, long-term investors have a critical role to play in financing the infrastructure that underpins a more resilient European energy system. We seek to focus on assets that aim to provide essential services, supported by durable regulatory frameworks, strong counterparties and clear risk allocation, particularly energy networks, storage, flexible generation and energy-efficient platforms.  

For Hamilton Lane, this means backing the infrastructure that makes Europe’s energy system more resilient and clean: flexible power grids, storage, interconnectors and efficiency-driven assets that reduce the marginal need for imported fossil energy. In a world defined by geopolitical disruption, the most valuable kilowatt-hour or barrel avoided is often the one that never has to fight its way through a contested chokepoint. 

This perspective is already reshaping capital allocation across our Infrastructure platform, including recent investments such as Project Tide, a floating storage and regasification unit (FSRU) business; Project Korn, a pan-European biogas-to-biomethane platform; and Project Polaris, a renewable energy independent power producer.*  

The case for resilient infrastructure 

Europe’s energy shock has underscored a central reality: Energy security, competitiveness and infrastructure investment are now inseparable. The shift away from Russian supply has reduced one set of risks, but it has exposed others embedded in a more complex, globalized system. Durable security will depend less on any single policy choice than on sustained investment in resilient networks, flexibility and demand reduction. For long-term investors, this environment may reinforce the potential strategic value of infrastructure assets that deliver essential services, stable cash flows and resilience under stress.  

We provide further insights and observations across infrastructure in our 2026 Infrastructure Market Overview. Please complete the form below to receive an emailed copy of the report.