Cyprus energy costs could rise 20 per cent in full-scale regional crisis

A global energy crisis triggered by the war in Iran appears increasingly likely in the short term, although a prolonged and catastrophic disruption remains less probable due to market resilience and existing reserves, according to Andreas Poullikkas.

Poullikkas, a professor of energy systems at Frederick University and former chairman of the Cyprus Energy Regulatory Authority, examined how the conflict could reshape global energy markets and what it could mean for Europe and Cyprus.

“The war in Iran has already begun to generate strong turbulence in global energy markets,” he said.

The war in Iran, which erupted on February 28, 2026, with large-scale air strikes by the United States and Israel on nuclear and energy installations in Tehran, has now moved beyond its first week and is already affecting international markets, Poullikkas explained.

“This conflict affects the supply of both oil and natural gas because Iran controls critical routes and infrastructure through which the majority of its exports pass,” he stated.

He pointed out that the Strait of Hormuz, through which roughly 20 per cent of the world’s oil supply passes, remained closed for several days during the early phase of the conflict.

“Iranian counterattacks on ships and infrastructure in neighbouring countries have already reduced production by around two million barrels per day,” he said.

Despite the escalation, the price of Brent crude oil rose to around 81.40 dollars per barrel after an initial increase of 4.7 per cent.

Energy sector stocks strengthened while the aviation sector faced strong pressure due to rising fuel costs and growing uncertainty, he explained.

European natural gas prices have already increased by around 15 per cent due to disruptions in liquefied natural gas flows from Qatar and delays along shipping routes through the Red Sea.

“Europe’s energy system is effectively undergoing a test of endurance,” analysts at Goldman Sachs mentioned, according to Poullikkas.

“This test concerns both the resilience of renewable energy systems and the adequacy of storage capacity,” he added.

In the United States, petrol prices have increased by about 20 cents per gallon, adding to inflationary pressures as analysts forecast Brent prices remaining above 80 dollars per barrel in the short term.

The OPEC has responded by increasing production from Saudi Arabia and the United Arab Emirates by around 500,000 barrels per day.

“This increase in production acts as a cushion that limits the immediate shock to the market,” Poullikkas explained.

However, he warned that the situation could still deteriorate if key infrastructure becomes a target.

“Prices could even double if attacks expand to critical infrastructure and maritime routes remain closed for a prolonged period,” analysts at The Soufan Center warned, he said.

In Asia, countries such as India and China are already experiencing higher import costs.

“Iran covers about ten per cent of India’s oil needs and remains an important supplier for Chinese companies,” Poullikkas stated.

In the Eastern Mediterranean, and particularly in Cyprus, the crisis is raising concerns over higher fuel prices and increased electricity generation costs.

“Countries in the region rely heavily on imported oil and therefore face common risks when disruptions occur in key maritime routes,” he said.

Electricity generation based on conventional fuels is also under pressure, increasing the likelihood that higher costs will eventually be passed on to consumers through electricity bills.

“The possibility that higher generation costs will be transferred to electricity bills is particularly strong in such circumstances,” he stressed.

Poullikkas added that several potential scenarios could emerge depending on how the conflict develops.

“These scenarios do not attempt to predict a single outcome but instead explore a spectrum of possible disruptions in supply, prices and global supply chains,” he explained.

The aim, he said, is to help policymakers understand potential economic, social and institutional consequences and prepare appropriate responses.

Under the first scenario, which he described as a short-term disturbance, the conflict would involve limited escalation with targeted strikes on key Iranian energy infrastructure.

“Oil supply disruptions in such a case are estimated at around two million barrels per day,” he said.

Particular focus would fall on facilities such as Kharg Island, which handles around 90 per cent of Iran’s exports.

“In this scenario, Brent prices would likely fluctuate between 80 and 90 dollars per barrel,” he stated.

Natural gas prices could increase by roughly 10 to 15 per cent due to temporary disruptions in LNG flows and increased supply chain costs.

Production increases by OPEC members would help mitigate the shock. “The additional 500,000 barrels per day from Saudi Arabia and the United Arab Emirates would function as a stabilising mechanism,” he said.

For Cyprus, such a scenario would translate into a moderate increase in fuel prices of around 5 to 10 per cent.

Moreover, electricity generation costs would rise by roughly 5 per cent, although the impact would remain limited because the disruption would likely last only one to two months.

The second scenario involves a more moderate escalation with more intensive military activity and attacks by Iranian allies on maritime and energy targets.

“This escalation could push Brent prices into the range of 90 to 110 dollars per barrel,” Poullikkas said.

Market volatility and investor uncertainty would also increase significantly. Disruptions to global supply chains could reach about 15 per cent, particularly affecting LNG shipments to Europe and Asia.

Financial institutions have warned about stronger inflationary pressures under such conditions.

“Global inflation could increase by up to two percentage points if energy prices remain elevated,” analysts including Goldman Sachs have indicated, he said.

Meanwhile, Citigroup maintains a base scenario of Brent prices around 80 dollars per barrel but acknowledges substantial upward risks.

In the Eastern Mediterranean, strategic reserves could begin to decline within approximately 30 to 40 days.

“The longer the crisis lasts, the greater the pressure on economies that depend heavily on imported energy,” he warned.

For Cyprus, this scenario would mean energy costs rising by between 10 and 20 per cent.

Electricity prices would increase while the situation would require faster investment in renewable energy, storage systems and electricity interconnections.

“It would also highlight Cyprus’ potential role as a strategic hub within the framework of the India–Middle East–Europe Economic Corridor,” he said.

The third scenario represents a full-scale regional crisis involving a wider war across the region.

“This would effectively mean a pan-regional conflict with almost permanent disruption of key energy routes,” Poullikkas said.

In this case, Iranian oil exports could collapse by as much as 90 per cent. Brent prices could exceed 120 dollars per barrel while global markets would be dominated by prolonged fear and risk aversion.

“Such an environment would inevitably lead to a significant slowdown in global economic activity,” he said.

For Europe, the scenario could result in a recession of around minus 1 per cent of GDP.

High energy prices would weaken production and consumption while LNG shortages could affect up to 70 per cent of markets.

For Cyprus, the consequences could be particularly severe. “Fuel shortages could emerge and electricity prices could increase by more than 20 per cent,” Poullikkas warned.

The crisis could last longer than six months and require emergency measures including energy rationing and the urgent expansion of renewable energy and storage projects.

Infrastructure risks would also rise significantly. “Multiplication of supply sources and routes is essential for strengthening the energy security of the Eastern Mediterranean,” analysts at the Soufan Center have warned, he said.

Summarising his assessment, Poullikkas said that the energy crisis resulting from the war in Iran appears highly plausible in the short term.

However, he stressed that a devastating long-term scenario remains less likely due to existing reserves, supplier diversification and the relatively rapid reaction of markets.

“The real challenge is not only the magnitude of the shock but the speed with which energy, economic and institutional structures can adapt to an environment of increased geopolitical uncertainty,” he concluded.