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Europe is currently experiencing a significant energy price shock and a surge in inflation due to the escalating conflict involving the United States, Israel and Iran in the Middle East. In late February 2026, the United States and Israel launched major airstrikes on Iran, which quickly disrupted critical oil and gas supplies. Within days, Iran responded with missile and drone attacks that targeted oil tankers and energy infrastructure across the Gulf region, leading to the closure of key facilities and chokepoints.
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Approximately 20% of the world’s oil and a similar percentage of liquefied natural gas pass through the Strait of Hormuz, a crucial shipping corridor located along Iran’s southern coast. By early March, the attacks on vessels in and around the strait had left roughly 150 oil and gas tankers stranded, effectively halting maritime traffic. Several Middle Eastern ports, including Jebel Ali in the UAE, were temporarily shut down after drone strikes sparked fires. Additionally, Iran targeted Saudi oil facilities and even a major Qatari liquefied natural gas (LNG) plant, resulting in the loss of about 20% of the global LNG supply.
These developments have thrown international energy markets into turmoil, driving fuel prices sharply higher worldwide. Brent crude oil surged above $100 per barrel in the days following the outbreak of the conflict, rising by over 40% from levels seen in late February. At one point, Brent prices spiked close to $120 per barrel before strategic reserve releases helped bring them down slightly. The US benchmark oil price, West Texas Intermediate, also rose to above $90 per barrel, a 36% increase over the previous week by early March. This week, Brent crude futures rose to nearly $117 per barrel on Thursday due to fresh attacks on key energy infrastructure in the Middle East: Iran targeted a Qatari facility housing the world’s largest LNG export plant in retaliation for an Israeli strike on its South Pars gas field.
Natural gas prices experienced an even more dramatic rise: Europe’s leading gas price benchmark, the Dutch TTF, soared by over 60%, climbing from the low €30s per megawatt-hour (MWh) to around €52-60 per MWh in the first week of March. This spike in prices reflects panic over tightening LNG supplies. Europe, which now relies heavily on seaborne gas imports, suddenly faces the possibility of reduced deliveries from the Gulf due to the conflict. Consequently, gas prices nearly doubled within days as traders scrambled for alternative cargoes, and market volatility remains high amid uncertainty about the duration of the disruption. This week, European natural gas futures jumped about 25% to over €68 per MWh on Thursday, the highest level in over three years, following Iran’s missile strikes on key energy infrastructure in the Middle East.
Of course, this is not the first time Europe has faced a significant energy price shock. European gas prices surged in 2021-22 as the continent entered winter with unusually low storage levels, while global demand rebounded sharply after COVID-19, diverting LNG cargoes toward Asia and away from Europe. Additionally, colder weather, reduced wind generation and LNG supply outages further tightened the market. The Russian invasion of Ukraine also led to fewer deliveries to the EU, intensifying the price surge.
During this period, a significant share of the EU’s paper and board (PAB) production was at risk. We estimated that approximately 7% of all virgin containerboard production faced potential disruptions, while the risk for recycled containerboard production was even higher, reaching around 25%. The situation was similar for graphic papers, where we assessed that nearly 20% of total production was at risk. Ultimately, while there were temporary production stops, these were primarily linked to soaring natural gas prices in 2022.
As production faced significant risks, the cost of making paper surged, prompting producers to rapidly increase paper prices. Between the second quarter of 2021 and the third quarter of 2022, graphic paper prices rose by 50% to 112%, covering the inflation in production costs (variable costs) for most grades. However, for publication paper grades, the price increases were disproportionately larger compared with production costs, leading to improved profit margins during this period. This was primarily due to relatively tight market conditions, coupled with aggressive capacity rationalization and an increased demand for printing products following the post-COVID-19 recovery in 2021 and early 2022. Additionally, market pulp prices also rose quickly, as supply struggled to keep up with the strong rebound in consumption observed in 2021.
On the packaging paper side, price increases were relatively modest, as most segments were already experiencing significant oversupply. Price gains for testliner and folding boxboard during this period were insufficient to offset inflation in production costs. Another key consideration is that packaging paper producers are less affected by market pulp prices, as they typically use recycled pulp or are well integrated into their own pulp production. While we could provide a detailed analysis of price trends for each specific grade, the focus of this discussion is to emphasize the risks associated with the rapidly escalating conflict in the Middle East.
Since then, Europe has rapidly shifted its gas supply away from Russia. EU governments have reduced pipeline imports, imposed sanctions and expanded LNG terminals. Additionally, as Russian gas volumes diminished, Europe increased its LNG purchases from the United States, which has become its dominant supplier, and enhanced deliveries from Qatar. This shift occurred because US LNG expanded quickly, providing a stable, non-Russian supply, while Qatar offered long-term LNG capacity that Europe could utilize as part of its diversification strategy. Furthermore, several countries are becoming less reliant on gas for energy production. However, others such as Italy remain heavily dependent on gas, which accounts for about 40% of its energy production. This dependency helps explain why electricity prices in Italy are higher than in most EU countries in 2026. Other countries that significantly rely on gas for electricity production include the Netherlands and the United Kingdom.
The production of paper and board is highly energy intensive. While energy solutions can vary by mill and grade, approximately half of the energy used in Europe comes from natural gas. The segments most reliant on gas include coated recycled board (92%), newsprint (72%) and testliner (68%). It is not surprising that recycled fiber-based grades depend more on natural gas, as they lack the energy efficiencies associated with pulp production.
To clarify the potential impacts of rising energy prices, we have estimated how an increase of €10 per MWh in gas prices would affect the production costs of various PAB grades produced in Europe. Due to significant variability across companies and even within individual mills, we present a simplified overview of the minimum and maximum exposure for each grade.
For most grades of paper, at least one mill operates independently of natural gas, which results in a minimum cost exposure of zero for those grades. The weighted average cost per grade allows for straightforward comparison and serves as a useful indicator of how production costs may vary across grades. The exposure to rising gas prices differs significantly; for example, variable production costs may increase by as little as €5 per tonne for folding boxboard, while white-lined chipboard could see an increase of up to €20 per tonne. This highlights that the exposure to volatility in natural gas prices is highest for non-integrated, virgin-based graphic papers and recycled-based packaging paper grades.
From a geographical perspective, mills in countries that heavily depend on natural gas for electricity generation may be considered at higher risk. These countries include Italy, the Netherlands, the UK and, to a lesser extent, Germany and Spain.
Although significant, the Middle East conflict is causing inflation beyond natural gas prices. Refined fuel costs have also risen sharply. Average diesel prices in Europe (road-transport weighted) are about €2.00 per liter, up about 20% from roughly €1.65 per liter before the war, driving up transportation and industrial costs and contributing to consumer inflation pressures. Chemical costs are also rising as the chokepoint in the Strait of Hormuz limits supply.
Lastly, any analysis of the crisis in the Middle East would be incomplete without considering the potential impact on European exports. In 2025, Europe exported nearly 1.2 million tonnes of graphic and packaging papers, with containerboard making up almost 70% of that total. The Middle East accounted for 15% of European containerboard exports. Although only the fourth largest destination by volume, a decline in exports to the Middle East could worsen the oversupply situation Europe is currently facing. In terms of boxboard, the Middle East accounts for roughly 11% of total European exports, while its share in graphics is only about 6%.
Europe is not the only major exporter to the Middle East; Asia ranks second. If Asia cannot sell its goods in the Middle East, it may send them into other markets, including Europe, further threatening European export volumes.
We at Fastmarkets will continue monitoring the conflict and its effects on our industries. Stay tuned for more analysis on this topic in the coming weeks.
Want to navigate this energy price shock with confidence? Learn more about our price data and forecasting for the European paper and board markets to protect your bottom line today.