The U.S.-Israel war on Iran has brought the Strait of Hormuz to the center of global energy politics, generating renewed concern among European governments over the vulnerabilities inherent in relying on supply routes subject to geopolitical disruption. As tanker traffic through the strait collapsed and gas prices across Europe rose by more than 70 percent in the weeks following the outbreak of conflict, governments turned once again to the search for alternative suppliers.
In this context, Algeria has re-emerged as a key beneficiary of shifting geoeconomic conditions. Its strategic relevance lies less in its ability to replace lost energy exports from Gulf producers than in its insulation from the maritime chokepoints now disrupting global markets. This has enhanced the commercial and strategic value of Algeria’s existing position within the European energy supply matrix, while presenting Algiers with an opportunity to convert elevated short-term demand into longer-term gain. At the same time, the country has been here before and has struggled to translate favorable external conditions into sustained production growth or structural reform. Given the prevailing conditions inside Algeria, this is a story that is likely to be repeated.
The windfall
The immediate commercial benefits of the Hormuz closure for Algeria are substantial. With the price of Brent crude holding within the vicinity of $100 per barrel and European gas prices rising sharply since the start of the war, Algeria’s hydrocarbons revenues, accounting for more than 90 percent of the country’s export revenues, have risen considerably. Sonatrach, the state-owned energy company, has reportedly sought to capitalize on increased demand by pursuing a 15 to 20 percent price adjustment on any additional LNG volumes, while the IMF has revised its growth forecast for Algeria upward by roughly 1 percent, identifying the country as among the principal beneficiaries of the conflict.
Algeria is trying to sustain this momentum by presenting itself as a more reliable energy partner than its Gulf counterparts, whose central maritime supply line is now under the control of the Iranian navy and subject to soaring war insurance premiums. By contrast, the TransMed pipeline, which carries Algerian gas to Italy via Tunisia and the Mediterranean, and the Medgaz pipeline, which connects Algeria directly to southern Spain, operate independently of the affected maritime routes and therefore do not carry any foreseeable geopolitical risk.
As a result, some European leaders have moved swiftly to consolidate their relations with Algeria to ensure existing supplies keep flowing and any additional volumes head across the Mediterranean rather than to other destinations in an increasingly scarce and competitive marketplace. Italian Prime Minister Giorgia Meloni traveled to Algiers on 25 March for her second meeting with President Abdelmadjid Tebboune since taking office, while Spanish Foreign Minister Jose Manuel Albares met his Algerian counterpart the following day. Most recently, EU Commissioner for the Mediterranean Dubravka Šuica visited Algiers on 4–5 May for high-level meetings covering energy, trade, investment, and migration, including a session with Minister of Oil and Gas Mohamed Arkab focused on the EU-Algeria energy partnership.
The bilateral relationship with Italy has developed considerable depth in recent years. The July 2025 intergovernmental summit in Rome produced over 40 bilateral agreements, and trade between the two countries reached 12.9 billion euros in 2025, and Italian direct investment in the Algerian economy stood at 8.5 billion euros, making Algeria Italy’s largest trading partner on the African continent. Relations with Spain have similarly stabilized following the diplomatic rupture of 2022, when Madrid endorsed Morocco’s autonomy plan for Western Sahara that Algeria opposed. Sonatrach holds a 51 percent stake in the Medgaz pipeline and approximately 4 percent of Spanish energy company Naturgy, with Algerian gas accounting for 29 percent of Spain’s total gas imports in the first two months of 2026.
Framing Algeria as a “safety valve” for Europe misses the real significance of its role, as its importance in the current crisis comes from supply security and route reliability, not from its ability to replace Gulf volumes outright. Italy generates over 40 percent of its electricity from gas, more than twice the EU average of 17 percent, and draws approximately 30 percent of its annual gas consumption from Algeria, illustrating precisely how much that reliability matters.
These interdependencies are unlikely to dissolve once the immediate energy emergency subsides. Yet the flow of gas they sustain is steady rather than growing. Despite Algeria’s commitments to expand exports amid the European energy crisis triggered by Russia’s invasion of Ukraine in 2022, European Union imports of Algerian gas declined from 37 billion cubic meters in 2021 to 32 billion cubic meters in 2024, demonstrating the limitations that continue to constrain Algeria’s export capacity even under favorable geopolitical conditions.
Therefore, despite its insulation from chokepoint risk, Algeria offsetting trapped Gulf exports is not in the cards. One estimate puts the likely increase in Algerian supply during 2026 at between 4 and 8 billion cubic meters, well below the disruption caused by reduced Gulf flows. This includes the impact on Qatar’s Ras Laffan facility, which lost approximately 17 percent of its export capacity and triggered subsequent force majeure declarations affecting European contracts.
This points to a larger problem than how much Algeria can capitalize on the current economic windfall. For a country whose hydrocarbons sector has long generated significant revenues without translating them into expanded production capacity, what matters most is whether Algeria can convert the economic boon into something that outlasts the crisis. Historically, Algerian hydrocarbon surpluses have not led to comparable growth in extraction capacity, leaving the country exposed to swings in energy prices rather than to stable increases in output.
Why Algeria is likely to struggle to capitalize
Algeria’s ability to convert external demand into lasting production growth has been consistently limited by domestic constraints, and the current moment is unlikely to prove an exception.
The TransMed pipeline, which has a nominal capacity of 33.5 billion cubic meters, is currently operating at around 63 percent of that level. Domestic gas consumption stood at 53.3 billion cubic meters in 2025 and is projected to rise to 59.5 billion cubic meters by 2034, driven by gas-dominated power generation, leaving progressively less available for export. This demand growth is sustained by domestic pricing that the IMF estimates to be among the lowest in the world, and was more than 90 percent below cost-recovery levels in 2023. This costs the state an estimated 4 billion dollars annually in subsidies, which remain politically difficult to reform given the social risks associated with their removal.
Aging liquefaction infrastructure compounds the problem. Even as gas production rose by 5 percent in June 2025, Algeria lost 230 million cubic meters of export sales due to recurring technical failures at the Arzew facilities, causing LNG exports to fall from 6.95 million tons in the first 7 months of 2024 to 5.6 million tons over the same period in 2025. At the upstream level, overproduction and underinvestment in the Hassi R’Mel field, the backbone of Algeria’s export infrastructure, have led to deteriorating reservoir performance and declining output rates, and industry analysts forecast that available gas production will peak around 2027, then plateau.
A long-term regulatory threat also looms. Algeria ranked 6th among the world’s largest gas flarers in 2024, according to World Bank estimates, and EU methane regulations scheduled to take effect in 2030 will penalize high-emission imports, adding a time-sensitive barrier to Algerian gas in the very market it is currently courting.
Still, in 2025, major energy companies including Italy’s Eni, France’s TotalEnergies, QatarEnergy and China’s Sinopec, were awarded exploration blocks in Algeria’s first licensing round since 2014. Sonatrach has committed to a 50 billion dollar investment plan for 2024 to 2028, with more than 70 percent directed toward exploration and production. The 2025 licensing round awarded 5 out of the 6 blocks on offer, a considerably more encouraging outcome than the 2014 round, which awarded only 4 of 31 blocks. In April of this year, Algeria launched a new licensing round offering 7 exploration blocks, with contracts to be signed by January 2027.
Questions remain, however, about how many of the preliminary agreements with international companies will materialize into investments. Sonatrach has also faced persistent leadership instability, appointing six CEOs over the past decade, a turnover rate that has arguably impeded long-term planning and continuity of vision. The broader investment environment remains constrained by regulatory instability, with international firms complaining of constantly shifting laws and regulations, and a bureaucratic culture in which political considerations routinely override commercial ones.
An Open Window?
The current moment represents a convergence of opportunity and constraint that Algeria has encountered before. The Strait of Hormuz closure has created the conditions for a significant fiscal windfall and accelerated European demand for Algerian supply, and the ongoing licensing rounds and investment negotiations indicate that Algiers is at least attempting to convert this moment of opportunity into a structural win. Whether those efforts translate into durable change remains uncertain. The historical record offers limited grounds for optimism: periods of high export revenues have not consistently produced expanded production capacity or institutional reform, and the fiscal pressures and subsidy commitments that constrained previous attempts remain in place. So do the structural inefficiencies that have historically stood in the way of lasting production gains. The window is open; yet history shows it does not stay open for long.
