European energy prices hit two-year highs amid US-Iran tensions

European natural gas prices have reached two-year highs, driven by geopolitical tensions and supply concerns. At the Dutch TTF hub, gas prices for next month's delivery rose to approximately 65.87 euros per megawatt-hour (MWh), marking a weekly increase of over 7 percent.

The surge in gas prices has directly impacted electricity markets. On the Prague-based PXE exchange, electricity prices for next year's delivery rose to 127.44 euros per MWh. This correlation is due to the role of gas-fired power plants in meeting peak demand.

Market volatility is being fueled by escalating tensions between the United States and Iran. Investors are reacting to potential U.S. plans to impose severe economic sanctions on Iran, which could disrupt liquefied natural gas (LNG) supplies from the Persian Gulf. Concerns regarding the security of the Strait of Hormuz are further complicating the delivery of LNG from regions like Qatar. These factors, combined with high summer demand for cooling, are slowing the replenishment of European gas reserves ahead of the winter heating season.