The truce between the United States and Iran has given the world a break, as Europabut recovering normal traffic in the Strait of Hormuz will take time and the damage to energy infrastructure due to the bombings in the Gulf countries will have a lasting impact on the markets. In the face of uncertainty, the European Commission continues with preparations for a package of measures to face the crisis. We review them.
“We are facing a very serious situation,” acknowledged Dan Jorgensen, European Commissioner for Energy, during a press conference, after meeting with the ministers of the Twenty-seven two weeks ago. “We must have no illusions that the consequences of this crisis for the energy markets they will be temporary, because they will not be,” Jorgensen warned.
The commissioner pointed out that the end of the conflict was not necessarily the end of rising prices. This Thursday, a group of experts determined that “long-term consequences are expected” in the gas market, according to community sources. That’s why, They recommend starting to stock up to avoid problems in the face of winter.
The ceasefire and the reopening of Hormuz are very important, but In the face of uncertainty, Brussels continues to design measures to alleviate the effects of the crisis. According to community sources, the truce “has had no impact” on preparations. Jorgensen assured that The crisis has nothing to do with that of 2022when the price of gas skyrocketed after turning off the tap in Russia. But he also admitted that now “we face a broader range of problems.” Although the EU is also more prepared.
Diversify and reduce dependencies
In 2022, following the Russian invasion of Ukraine and in response to sanctions, the Kremlin stopped gas supplies to Europe. Russia was then one of the main suppliers to the EU countries. The first thing the Europeans did was Diversify your gas purchases to reduce your dependence. Currently, the bloc buys 58% of the gas it consumes in the United States and Only 8.5% of the gas arrives through the Strait of Hormuz.
In fact, The EU hardly depends on the Gulf countries. But oil is another story. The Energy spokesperson of the European Commission, Anna-Kaisa Itkonen, explained that although only 7% comes from countries in the region, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates, The bloc imports 40% of diesel and aircraft fuel across the strait.
After the 2022 crisis, The Twenty-seven focused their efforts on diversifying their suppliers y accelerate the transition to renewable energy sources, the only ones that are mostly produced in community territory. The Commission has once again sent that same message in the face of this crisis.
“This crisis shows us once again that Europe faces vulnerability fundamental to external energy disturbances. And this is linked to our dependence on imported fossil fuels“said the commissioner. “This must be the moment when we finally learn this lesson,” he added.
The European exception?
As happened in 2022, The problem is not so much supply but cost. Uncertainty in the markets as a consequence of the conflict The price of gas has skyrocketed. Since the wholesale price of electricity in the EU internal market is directly linked to the price of gas, this has skyrocketed again as a result of the crisis.
The debate about a possible reform of the electricity market in the EU still open. Everyone agrees that this model is not ideal, but no one seems to find an alternative that works for twenty-seven countries with very diverse energy mixes. However, the option of delink the price of electricity from the price of gas, although temporarily, it is back on the table.
Taxes on electricity
Precisely as a result of this model, electric companies are generating extra profits. In a letter sent on April 3 to the European Commission, Spain, Germany, Italy, Portugal and Austria asked to create a temporary tax to value those returns and power use money to alleviate the impact of the crisis for consumers and businesses, as happened in 2022.
These types of measures, the Ministers of Economy of these five countries assured in the letter, would send “a clear message that those who benefit from the consequences of war must contribute do their bit to alleviate the burden that falls on the population.” Brussels, for now, has limited itself to confirming that has received the letter and is studying the proposal.
Reduce and add demand
Europe does not have a supply problem, at the moment. However, some countries have already experienced shortages of some fuels. Countries like Slovenia have been forced to introduce purchase limits and some Italian airports were threatened with having to ground planes due to lack of kerosene.
Last Wednesday, he met the group of experts monitoring the situation in the oil markets. According to community sources, they determined that The impact on prices is “limited” and there is no risk of an “emergency”at least in April. The same sources reiterated that The EU “has the necessary tools to manage this crisis.” But also that the Commission is working on a series of measures to mitigate its impact.
The energy commissioner invited European governments to implement the recommendations “to the extent possible” of the International Energy Organization to reduce demand. This happens, for example, recommend teleworking when possible, reduce speed limit on highways, encourage public transport or increase car sharing.
In 2022, the EU has already taken such measures, e.g. calling to lower the heating temperature or to turn up the air conditioning to save. The savings reached up to 18% compared to usual consumption. Another of Brussels’ recommendations, as then, has been to start fill the tanks to avoid problems facing winter. In this sense, Joint purchases could also be encouraged to reduce costs.
However, in an interview with Financial TimesJorgensen acknowledged that They were preparing for the worst. The Energy Commissioner assured that that point had not been reached, but Brussels did not rule out having to take measures to ration oil.
State aid and tax reductions
Last March, the president of the European Commission, Ursula von der Leyenpresented leaders with a series of options to urgently address the consequences of the crisis. That proposal included, as in 2022, the possibility of make state aid more flexible to support the most affected sectors or reduce taxes on electricity or special rates.
The package of measures should arrive in the coming days. Brussels is closely monitoring the situation and will adapt measures according to the severity of the crisis. But much of the burden on how to address its effects continues to fall on the shoulders of governments.
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