The energy price shock triggered by Middle East tensions has sent Brent crude to $108 a barrel, up from $70 a month ago, while European natural gas prices have jumped 70% to €50/MWh. This represents a significant economic challenge for Europe, particularly as UK Chancellor Rachel Reeves' growth strategy faces disruption from the Gulf conflict.

Unlike previous crises, Europe has built greater resilience since Russia's invasion of Ukraine. Natural gas consumption has fallen 16% across the EU since 2021, even as GDP expanded, with UK gas imports down 17%. The shift away from gas in electricity generation is particularly notable, with renewables increasingly setting prices rather than expensive gas plants.

Central banks face a crucial test in preventing price rises from becoming persistent inflation, though weaker labor markets and reduced supply chain bottlenecks provide some assistance. The UK's windfall taxes remain in place, offering limited support to vulnerable households. While the energy shock remains overwhelmingly negative, Europe's improved energy efficiency and renewable capacity provide a silver lining. The region's ability to weather this crisis without the costly, broad-based interventions of 2022 represents meaningful progress.