Europe’s economy faces a one-two punch from extreme weather and war

By Hanna Ziady, Anna Cooban, CNN

London (CNN) — Nuclear power plants idled. Crops harvested at 3 a.m. Iconic tourist attractions shuttered early.

Soaring temperatures are forcing drastic measures in Europe, where successive heatwaves are straining an economy already under pressure from US tariffs, Chinese competition and higher energy prices because of the Iran war.

Romania’s state-owned nuclear power producer Nuclearelectrica started disconnecting its sole operational reactor from the power grid Thursday because of record-low water levels in the Danube, crucial for cooling its equipment, the company confirmed to CNN. The country has declared a state of energy emergency throughout August and asked businesses and households to voluntarily reduce consumption, Reuters reported.

Elsewhere, France and Hungary have had to curtail nuclear power due to low river levels and high temperatures. Drought conditions are also fueling devastating, costly wildfires and reducing crop yields, threatening to push up food prices.

Europe’s sweltering summer could cost the economy €180 billion ($208 billion) this year, or 1% of GDP – roughly the entire expected economic growth of the European Union, according to an estimate by Netherlands-based Triodos Bank. “Lower labor productivity is likely to have the largest economic impact, alongside disruptions to agriculture, energy and transport,” the bank said in a report this month.

Swaths of Europe are enduring their fifth heatwave of the year this week, with parts of Britain, France, Spain and Italy under extreme heat warnings. The latest scorcher comes after Western Europe recorded its hottest June and July on record, according to Copernicus, the European Union’s climate monitor. In Paris, extreme heat prompted the Eiffel Tower and the Louvre to close early on some days.

While some analysts doubt the heat will have a sizeable impact on economic growth this year, pointing to improved business confidence in July and increased GDP in the first half, hot weather is not the only economic threat.

Europeans also face the prospect of hikes to their energy bills this winter, as natural gas prices climb. The price of benchmark natural gas futures traded near their highest levels since the start of the Iran war this week, and almost twice as high as the same time last year.

The war in the Middle East has made cargoes more scarce and, in turn, more expensive, raising the prospects of another energy crunch. Blistering heat has also raised demand for air conditioning, driving up natural gas consumption at a time when stores need to be refilled ahead of winter.

“The EU natural gas market is vulnerable looking ahead to peak winter demand,” Kieran Tompkins, senior climate and commodities economist at Capital Economics wrote in a note earlier this month. “Storage levels are the lowest for this point in the year for over a decade.”

Dry rivers, overnight farming

The Danube is not the only critical European waterway drying out as a result of a prolonged drought.

In Germany, Europe’s biggest economy, record-low water levels in the Rhine – an important transport route for industrial goods such as steel and chemicals – could shave 0.3 percentage points off the country’s GDP growth this year, according to economists at pan-European bank ING. That would be a heavy blow for an economy growing at less than 1% a year.

BASF, the German chemicals giant, said it may be unable to fulfil orders of some chemical compounds because the Rhine’s low water levels have restricted the supply of certain key raw materials.

“We are… shifting volumes to alternative modes of transport such as trucks and rail,” the company told CNN, noting that it was also using a greater number of vessels specifically designed to navigate shallow waters. A number of German states have temporarily suspended Sunday driving bans for trucks in an emergency effort to mitigate supply chain disruption.

The European Commission said earlier this year that EU member states should be investing about €70 billion ($81 billion) per year to 2050 in climate adaptation — spending that could boost economies but will also pile pressure on strained government budgets.

Some companies have already started adapting in innovative ways. In England, a notoriously rainy part of the world, family-owned Rookery Farm is harvesting its crop at 3 a.m. to ensure it has sufficient moisture content.

“Harvest is no longer just about dodging the rain – we’re now adapting to crops that can become too dry, meaning more night-time harvesting to meet the quality standards our customers require,” farmer Eleanor Gilbert said in a video posted to Instagram.

High energy prices ahead

As Europe grapples with successive heatwaves, it also faces the prospects of a winter energy crunch. Gas storage levels across the EU were 59% full on Tuesday, according to data from Gas Infrastructure Europe — well below the average for this time of year and on par with levels seen during summer 2021, when Russia had begun restricting exports to the continent.

“I’m really concerned,” Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy, said of the EU’s ability to replenish diminished stocks.

“There have been very few cargoes… exiting the Strait of Hormuz. All of them are going to Asia,” she told CNN.

Summer is primetime in Europe for stocking up on gas before the colder winter months, when prices are often considerably higher. Yet the Strait of Hormuz is still effectively shut, choking off one fifth of the world’s supply of liquefied natural gas — a liquid form of the fuel carried by tankers.

Remaining cargoes, such as those from the United States, are also more likely to head for Asia than Europe, say analysts, because demand there is particularly strong and buyers are stumping up more.

But this is “not a ’22 crisis,” said Christoph Halser, senior analyst of gas and LNG research at Rystad Energy, referring to that year’s historic price spikes in Europe following Russia’s full-scale invasion of Ukraine.

Since then, the continent has greatly reduced its imports of Moscow’s gas — the bulk of which arrived via pipelines — as well as reduced its overall consumption.

“Gas demand in Europe today is roughly 20% lower than, let’s say, in 2021,” Halser told CNN.

Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie, is also confident that Europe will avoid a dire scenario of energy shortages and blackouts.

The risk of shortages are “overstated” he said, adding that the region has the means to “buy itself out” of any such predicament.

Still, prices are unnervingly elevated.

The price of Europe’s benchmark natural gas contract settled at €61 ($70) per megawatt hour on Wednesday, well above the €32 ($37) logged on the same day in 2025, according to Intercontinental Exchange data.

During the winter, “Europe should be really worried about a situation where the Strait of Hormuz doesn’t open because this could certainly result in prices being extremely high,” Di Odoardo said.

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Elina Baudier Kim contributed reporting from Paris.