(VOVWORLD) - Failing to find a way out of the Ukraine crisis and in constant tension with its most important ally, the United States, the European Union is now facing additional economic and geopolitical challenges from the growing conflict in the Middle East.
Leaders of the EU’s 27 member states are holding a 2-day summit on Thursday and Friday in Brussels, focused on boosting competitiveness and supporting Ukraine, but global developments are forcing the bloc to shift its priorities.
Pressure from the Middle East
On the first day of the summit, the European Central Bank said the energy shock unleashed by the Middle East conflict will sharply push up inflation and hurt the eurozone's growth this year. In December, the bank cut its 2026 eurozone growth forecast from 1.2% to 0.9% and raised its eurozone inflation forecast from 1.9% to 2.6%.
This revision reflects the impact of the Middle East conflict on global commodity markets, real incomes, and investor confidence, with Europe among the hardest hit due to its reliance on imported liquefied natural gas (LNG) from the Gulf region. LNG prices in Europe surged 35% on Thursday, and if the increase continues, the continent will have a limited capacity to respond.
Gas prices in Europe are currently just over 70 euros/MWh. Although it’s unlikely there will be an energy crisis on the scale of 2022, when gas prices exceeded 340 euros/MWh, any energy shock exacts a significant economic cost.
"In terms of the economic impact on Germany and Europe, the duration of the Middle East conflict is less important than what happens with the Strait of Hormuz. Whether the strait will be reopened and consistently accessible for oil and gas exports is crucial. If it happens, prices could fall relatively quickly, and Europe would escape the current high energy prices. That would bring significant relief to the European economy," Marcel Fratzscher, President of the DIW, the German Institute for Economic Research, said.
However, for Europe, the Middle East conflict is not just an economic issue. US President Donald Trump’s angry threats aimed at several European allies that refused to support Washington in its conflict with Iran have prompted other European allies to respond with extreme caution to avoid being drawn into an unwanted conflict while preventing further deterioration in their relations with the US.
“I think European leaders, rather than discussing the long-term structural policies, will be forced to really talk about what is happening at this moment and at least try to find a coherent position or at least a position where the majority of the countries are working together in one direction. And we've seen that in the decision which is already crystallizing out that Europe is not going to get involved in supporting Trump in this war,” said Fabian Zuleeg, Chief Executive of the European Policy Centre in Brussels.
Divisions over Ukraine
The Middle East conflict and its resulting energy problems have further complicated one of the EU’s top priorities at this week’s summit – approving a 104-billion-USD loan package for Ukraine.
Disagreements over a Russian oil pipeline running through Ukraine to Hungary and Slovakia have led Hungary to stubbornly resist the loan package, despite pressure from the bloc. Last December, Budapest agreed to the package on the condition that Hungary, Slovakia, and the Czech Republic not be required to contribute. But Hungary is now increasing its demands.
Several European Commission leaders and EU member states have strongly criticized Hungary’s resistance, arguing that internal divisions are undermining the EU’s capacity to respond rapidly to successive global shocks.
"What just happened at the European Council is unacceptable. It will have consequences far beyond this single event. We’ll have to re-discuss the loan for Ukraine with key conditions relating to the budget and many associated matters," German Chancellor Friedrich Merz said.
The Middle East conflict and the risk of a new energy crisis are causing uncertainty within the EU. Last Saturday, Belgian Prime Minister Bart De Wever said that the EU is “losing on all fronts” and should end its confrontation with Russia “in Europe’s interest”.
The EU needs both to re-arm and to normalize relations with Russia in order to regain access to affordable energy, said De Wever. He noted that many European leaders privately share this view, even if they hesitate to say so publicly.
Observers say that, for a bloc that has consistently viewed sanctions and pressure on Russia as the best way to support Ukraine, such remarks from Belgium’s Prime Minister could signal a significant turning point which not all European leaders are yet willing to acknowledge.