A few thoughts on the geopolitical situation in Europe, particularly its energy supply and the future of AI amid the escalating situation in Iran.
Most of you know that I live in Germany. That makes commenting on the situation in Europe a personal concern, especially when it comes to AI, the technology my life revolves around. My focus here is on Europe as a whole, beyond Germany alone.
Germany is currently failing to make the leap into the future. Despite statements to the contrary from the EU, particularly Ursula von der Leyen’s vision of Europe becoming “the first AI-first continent,” and the loud promises from Chancellor Friedrich Merz, including a task force for AI in business, the reality is far more sobering. Digitalisation is still a foreign concept in German public administration. Letters and faxes remain the norm. With the new D-You app, Germany at least wants to make identification digital, but that is about as ambitious as it gets. AI first is nowhere to be seen, making it an empty promise.
Yet even if Europe were to pursue AI with everything it has, the continent would still face a serious problem: its energy vulnerability. In a September 7 analysis, DZ Bank reported that German gas storage facilities were only around 50% full, compared with the 85–95% it described as usual for that time of year. It attributed the shortfall to depleted stocks after a cold late winter, disruption around the Strait of Hormuz, competition for LNG cargoes and weak commercial incentives to refill storage. The bank warned that an unusually cold winter could bring sharp price increases and, in an extreme case, selective supply cuts. That is a conditional risk scenario, rather than a prediction that shortages are inevitable. They warn of a potential cold-weather supply gap: in an exceptionally cold winter, such as 2010, Germany could face a physical supply shortfall of up to 9 TWh per month in January or February, along with selective supply cuts to industry.
Gas remains deeply embedded in Germany’s economy. BDEW puts the share of existing homes heated with gas at 56.1% in 2024. Destatis reports that gas accounted for 16.1% of domestic electricity generated and fed into the grid in 2025. These figures alone show how exposed Germany remains to gas-market disruption.
The price shock has also left a lasting mark. German household gas prices in the second half of 2025 were 79.1% higher than in the second half of 2021, before Russia’s full-scale invasion of Ukraine. Supply diversification has not restored the old cost environment. Since the war in Ukraine and the blowing up of the Russian Nord Stream gas pipeline, the situation has deteriorated dramatically. Despite various attempts to diversify supply, Germany has not really managed to restore anything close to the comfortable position it had before the war. Quite the opposite: since 2022, Germany has been paying significantly more for gas.
Fuel prices add another layer of pressure. According to ADAC, Germany’s average Super E10 price reached a record monthly level in August 2026, while diesel had already set a daily record in April. That does not mean every fuel price is currently at its highest-ever daily level, or that crude oil itself has reached an all-time high. But the pressure at the pump is substantial, and it comes on top of the gas problem.
I find Germany’s energy policy difficult to reconcile with these vulnerabilities. Economy Minister Katherina Reiche continues to back additional dispatchable power capacity, including new gas-fired plants. The stated purpose is to secure electricity supply, but my concern is how this fits with reducing exposure to imported gas. Wind and solar are making measurable progress. Germany added almost 21 GW of renewable capacity in 2025, with solar and wind accounting for most of the increase. But the battery supply chain remains a strategic concern. Northvolt’s bankruptcy in March 2025 was a major setback for European battery ambitions. It did not, however, mean that all European battery production or storage development had failed.
The wider dependency is real: the IEA estimates that China accounts for around 80% of lithium-ion battery supply-chain production capacity. Batteries help integrate variable wind and solar generation, including into the electricity systems serving data centres. They are one part of the solution, alongside other grid and supply measures. Europe’s dependence on concentrated overseas supply chains deserves serious attention.
The latest developments around Yemen add to that concern. The Houthis captured the port of Mokha on September 10, followed by the strategic island of Mayun in the Bab el-Mandeb Strait on September 11. These advances threaten Red Sea shipping and could strengthen Iran’s leverage. They do not by themselves establish that the entire Red Sea coast has been seized or that every alternative shipping route is completely blocked.
Meanwhile, Anthropic’s report yesterday made clear that Iran’s Revolutionary Guards recently found ways to use Claude to orchestrate intensified attacks on the US Navy. The significance is that the assumption that Iran has been weakened is increasingly falling apart. On the contrary, it appears that Iran is harnessing the technology of the future and working with the Houthis to improve its position. All of this has a direct impact on Europe.
The United States starts from a different energy position. It is the world’s largest oil and natural gas producer, giving it a substantial domestic supply base. It is also a major supplier of LNG to Germany: according to the Federal Network Agency, citing BDEW, around 96% of Germany’s LNG imports came from the US in 2025. LNG delivered through German terminals represented 10.3% of total German gas imports that year, so it should not be confused with Germany’s entire gas supply.
China, meanwhile, is expanding its domestic electricity supply on an enormous scale. The EIA reported 36 nuclear reactors under construction as of May 2026. China’s National Energy Administration reported roughly 318 GW of additional solar power capacity in 2025 alone. To put that scale into perspective, China installed roughly as much solar capacity in 2025 alone as the United States did over the past 10-15 years.
This is the balance of power Europe finds itself in: dependent on both the United States and China, while entirely exposed to the energy crisis stemming from the wars in Ukraine and Iran. There is currently no viable solution to this crisis. And this is precisely the context in which the statements by Ursula von der Leyen and Friedrich Merz should be read.
The crisis is so acute and so severe that “AI first” is out of the question. The immediate concern is the survival of the economy. Resurgent inflation is draining wealth from Europe, and keeping its core industries alive will have to take the highest priority. Only then can we talk about investment in AI and even begin to consider how to supply the energy it requires.
I wanted to put these thoughts into writing because I believe that, amid all the noise, it is important to assess the underlying situation and look at the data.
Notes:
All numbers are fact checked, they should be correct.
I greatly enjoy delving into geopolitics, so feedback is welcome.