Energy commodity prices will remain roughly 20% above pre-war levels through the end of 2027. That is the blunt assessment EU officials delivered Friday in Cyprus, marking the second major energy shock to hit Europe in less than five years.
EU Economy Commissioner Valdis Dombrovskis said higher energy prices are driving inflation to a forecast 3.1% for this year and 2.4% for 2027—significantly higher than the earlier forecast for this year of 1.9% , according to statements made at the Eurogroup finance ministers meeting. GDP growth in the EU is projected to slow to 1.1% in 2026 from 1.5% in 2025, while growth projections for the euro area are revised down to 0.9% in 2026 and 1.2% in 2027 . The revision is stark: Europe was expecting modest expansion. Instead, it faces two more years of elevated prices and anemic growth.
The timing could not be worse for Kevin Warsh, who officially took over as Federal Reserve Chair on May 15. Trump is hoping Warsh can lead the Fed into much lower interest rates, but the president could be frustrated by persistent inflation, with Warsh confirmed on a 54-45 vote, mostly along party lines , NPR reported. Brent crude is above $107 per barrel, WTI is over $102 per barrel , according to market data cited in financial reports. Oil prices at those levels make rate cuts politically attractive but economically dangerous.
Can Central Banks Fight a Supply Shock?
The European Central Bank faces the same dilemma as the Fed: how to respond when inflation is driven by external energy shocks rather than domestic demand. Eurogroup President Kyriakos Pierrakakis said that for the EU, an end to the crisis would mean a return to free navigation without the imposition of any tolls through the Strait of Hormuz, from which roughly a fifth of the world's oil and gas passes . Until that happens, central banks are stuck.
Inflation appears to be broadening as higher input costs from oil are being passed through to consumers, with Krishna Guha, head of economics and central banking strategy for Evercore ISI, noting that "the April CPI release underlines the challenge facing Warsh" , according to Yahoo Finance. The Fed's benchmark rate currently sits between 5.25% and 5.50%, per market data. Investors predict rates will largely remain steady through the end of 2026, with less than 3% believing there will be a rate cut at any of the remaining FOMC meetings this year , according to the CME FedWatch tool cited by Chase.
Europe's situation is even more constrained. Energy commodity prices are expected to remain around 20% above pre-war levels even if markets stabilize later in the forecast period , the European Commission said. That is not a temporary spike. It is a structural repricing that will filter through to everything from electricity bills to food costs.
What About the Utility Mega-Merger?
While Europe grapples with scarcity, the United States is preparing for a demand surge. NextEra Energy is acquiring Dominion Energy in an all-stock deal valued at nearly $67 billion, creating the largest regulated utility in the world , according to SEC filings. The Financial Times called it "a pragmatic response to growing energy needs" driven by AI data centers.
The merger's timing reflects a broader crisis: nearly half of all U.S. data centers planned for 2026 have been canceled or delayed, with only about 5 GW of the 12 GW announced for this year under active construction , Bloomberg reported. Transformers, switchgear, and battery systems are in severe shortage, with lead times for high-voltage transformers stretched from 12-18 months to as long as 36-48 months in some cases , according to industry trackers.
The International Energy Agency projects that global data center electricity consumption will exceed 1,000 TWh by the end of 2026, an amount equivalent to Japan's entire annual electricity usage , per IEA forecasts. NextEra and Dominion are betting that whoever controls the power infrastructure controls the future. The $67 billion price tag suggests they are right.
