BBC: How Iran's war is bringing Europe into another energy crisis

Seven months after Ukraine's full-scale invasion of Russia, launched in February 2022, the president of the European Commission stood on its platform in the European Parliament and accused Russia of manipulation of the EU energy market.

“They prefer to put gas on fire rather than supply it to”, Ursula von der Leyen said, while rising energy prices hit consumers across the continent. “This market no longer works. ”

“This is a fight against our energy, a fight against our economy, a fight against our values and a fight against our future”, she said, insisting that Europe was already leaving Russian gas and was heading towards the most reliable partners like the US and Norway.

We swore to learn. We promised that things would change, but here we are”, a very frustrated European diplomat said. He asked for anonymity so that he could speak openly.

The focus of his gnashing was Europe's growing energy companion, caused by the heated conflict in the Middle East and threatening to dominate a summit of European leaders in Brussels on Thursday.

Instead of focusing on much needed long-term plans, how to make Europe more competitive in this increasingly unstable world, [European] prime ministers and presidents are now in panic for [power] prices, concerned about angry voters and trying to find short-term solutions.

“Like the crisis after Ukraine's full invasion of Russia. Different conflict. Same European divisions; same dilemmas on energy. We can't continue to behave in these circles. Something has to change. ”

It would be difficult to find a policymaker in Europe who would not agree with the latest statement.

But can Europe really secure its energy whether the entire continent or only 27 EU member states, with their diverse range of industries, energy requirements and prospects on renewable resources?

European Countries Hit Hard

Many things have changed since 2022, when Europe decided to gradually remove its dependence on Russian gas, oil and coal and become more energyly independent following Moscow's widespread attack on Ukraine.

Given the EU's reputation as a country with slow developments, the bloc acted swiftly after deciding to cut ties with Russian energy suppliers. Now only 2% of oil imports come from Russia, flowing only to Hungary and Slovakia, friendly countries with Moscow. The EU plans to end all Russian gas imports including LNG by next year.

A major twist from ahead of Ukraine's invasion by Russia, when Russia supplied about 55% of German natural gas imports, for example, fuelling its energy-enriched industries, especially the production of chemicals and vehicles.

As energy prices rose significantly in 2022 in response to the Russian occupation and energy stalemate between Russia and Europe, many countries, such as Italy and the United Kingdom, felt obliged to help consumers and businesses pay their bills. That was so soon after the economic shock of the David-19 pandemic, governments now poor of cash really felt the tribulation.

“Diversification” became the main word in the Brussels corridors. The EU decided it would never again allow itself to be so dependent on a single energy supplier.

But four years later, addiction is still there, even though there is more than one supplier. Europe now relies heavily on Norway and the US for its energy. Only Russia's removal from the equation has not solved the problem of the continent with energy security.

US Key Role

President Donald Trump's US has become one of the key pillars in Europe's energy supplies, replacing Russia.

Europe made a quick transition from Russian gas to liquid natural gas pipeline (LNG) in 2022. This continent is now the world's largest importer of LNG and LNG's largest single supplier (with a total of 57% of LNG's total EU imports) is the US.

Germany, thirsting for energy, now gets up to 96% of its LNG from the US. This addiction may explain why German Chancellor Friedrich Merz was silent when he sat near Trump at the White House two weeks ago, while the American president rebuked him and threatened to impose a trade embargo on Spain because it had not allowed him to use military bases on its territory to launch attacks on Iran.

Perhaps the struggling German economy and its current thirst for American energy were in Merz's mind. Maybe he didn't want to risk the American president's anger with his reputation for revenge. But that day was not a good sight for European unity.

Since returning to the White House just over a year ago, Trump has used Europe's economic impact and desperate desire for the United States to help find a lasting peace in Ukraine, to rely on the EU to engage in more expensive LNG from the US.

In July, Trump threatened the bloc with a painful 30% tariff for all its US exports -- goods like steel already facing even higher taxes.

The president of the European Commission, Ursula von der Leyen, flew immediately to Trump's Turnberry golf resort in Scotland, where the American president was on vacation, and signed an agreement to spend $750 billion on American oil, liquid energy (LNG) and nuclear technologies over the next three years.

The EU promised to set zero tariffs for American imports. In exchange, the Trump of “uli” its threat of 30% to 15% tariffs for most US EU exports.

Von der Leyen presented the deal as a strategic response to reducing EU dependence on Russian fossil fuels. But that put the bloc in a clear position of weakness against the US.

Meanwhile, the Trump administration celebrated the achievement of the biggest trade agreement in history, positioning itself as a country contracting its highly dissatisfied trade deficit with the EU and providing a massive amount of EU investments in American energy, military equipment and more.

European weakness

But in fact, it is not clear at all whether EU energy requirements or American exports can support the projected scale in the agreement, which is currently being debated in the European Parliament.

And the European support of LNG makes it extremely sensitive to global price instability in times of crisis, as we now see in the Persian Gulf.

Hormuz Strait is one of the most important shipping routes in the world and the most important oil transit point. About 20% of the global oil supply goes through it. The storm has been effectively blocked by Iran, except for a small number of ships carrying Iranian oil to India and China since Israel and the US attacked Tehran on February 28th.

Although Europe does not buy much oil or LNG from the Middle East, both goods are global markets: any impasse of the Hormuz Strait now or in the future can cause increased prices affecting Europe, despite its limited physical imports.

The sudden lack of supply, plus uncertainty about how long the current crisis will last, prompted oil prices to rise by about 8% and the price of European gas by about 20% on the morning of 2 March.

Cost and Competition

“This choice between Russian energy and global market instability is a very bad choice for Europe”, Dan Marks, a specialist in energy security in the group of defence experts, the Royal United Service Institute (Russia), told me.

He says Europe will manage to provide energy supplies to the current crisis, despite effective closure of the Hormuz Strait, because the rich continent can exceed other regions' expenditures in a crisis. But the problem is cost and competitiveness.

In the long term plan, he says, Europe should think of how to better build energy reserves and reduce or reorganise energy consumption to achieve more control over unexpected supply changes, as we are now seeing.

Marks also warns that Europe's continued reliance on foreign actors, such as the United States, on essential energy supplies, highlights the exceptional “kart” that is often not considered.

What if Trump suddenly decided to maintain energy supplies only for domestic consumption in the United States, in an effort to cut gas prices in the United States, or as a way to punish European countries for failing to immediately deploy warships to the Hormuz Strait to keep the water route open, as he requested this week.

Marks also raises the possibility that the United States will suffer from storms or terrible fires in the future, destroying LNG terminals.

It's a risk maturation. There's no easy answer here”, ends Marks.

Even increased use of gas by democratic ally Norway comes with challenges.

Norway is now the largest gas supplier in the EU, essentially occupying Russia's country, ensuring a third of the bloc's annual gas consumption and half of the UK's consumption.

Norway has also made it clear that it is already operating close to maximum production. This poses a dilemma for the EU, because increased supply would require new explorations and investments.

Oslo suggests that the EU is harming itself with plans to end the development of oil and gas in the European Arctic as part of an effort to ease climate change. It stresses that Russia has big plans to expand the production of liquid natural gas in the Russian Arctic.

Norway is pushing hard in Brussels to change its policies. This is just one of many ways in which environmental decisions are drawing into the vortex that is the energy debate in Europe.

Seek Short - Term Solutions

The hunt for short-term answers will dominate Thursday's EU summit. There is deep concern among a number of leaders that rising energy and potential inflationary increases (alongside possible influx of refugees to Europe due to the growing Middle East crisis) will affect voters and play in favour of nationalist populist politicians on the right and left of the European political spectrum.

“It is essential to reduce the impact of the cost [from the war in Iran]”, Ursula von der Leyen said this week on the summit's eve. “We must provide relief now... [We need] a comprehensive look at how to reduce people's energy bills. ”

EU leaders are considering the possibility of revising taxes, setting price restrictions for consumers and other measures as a quick solution for struggling industries.

Outside the bloc, the United Kingdom government has also come under pressure to help families with rising energy costs. Last week, British Treasury Chancellor Rachel Reeves said Treasury officials were reviewing the feasibility work undertaken during the Russian-Ukrainian energy companion of 2022.

Chinese Teaching

EU governments have also urged the European Commission to accelerate electricity expansion throughout the bloc, keeping costs under control.

They are aware that China is already far ahead in this process. It is true that, as the world's largest importor of oil, it has been hit by de facto closure of the Hormuz Strait. But Beijing has long followed an energy security strategy designed for just such moments.

At its core is electrification: shifting a larger part of the economy away from direct consumption of oil and gas. The goal is to reduce exposure to unstable oil and gas markets, which are sensitive to geopolitical divisions.

More than 30% of final energy consumption in China now comes from electricity, compared to a little over 20% on a global level and less than a quarter in the EU.

Policies aimed at energy security, as well as emissions reduction targets, have resulted in more than half of the cars sold in China to be electric instead of internal combustion engines.

But unlike China, in the EU, division is everywhere. Supporters and opponents of Green Policy and alternative energy supplies are using Iran's entire struggle to support their distinctive view, for example.

Belgium's prime minister, Bart De Weaver, shocked many people this weekend, including members of his coalition government, calling for the EU to normalise relations with Russia to regain access to free energy.

It is sound logic,” he claimed. “Privately, European leaders tell me I'm right, but no one can say it out loud. ”

Sometimes you hear deeply unofficial murmuring from parts of the German industry on this issue. The far-right AfD party, which leads German opinion polls, calls for sanctions against Russia to be lifted immediately.

Somewhere else in Europe, the rising energy costs caused by events in the Middle East are being used as another argument to weaken the EU's two-decademing Trade System (ETS).

ETS forces the industry to pay a carbon price for polluting practices. It was designed to drive companies away from using fossil fuels in the long-term plan.

A fierce debate is expected at the EU leaders' summit Thursday between countries wanting to preserve the ETS and those who wish to weaken or abolish it.

A number of EU member states, including Spain, Sweden and Denmark, have made clear their belief that the weakening of the ETS would penalise companies that have sought to modernise and become greener and would reward those behind the eventually caught industry after long-term support in fossil fuels.

On the other hand, Central European countries are essentially opposed ETS, while Austria and Italy want to address the ETS impact on electricity prices.

Italian Prime Minister Giorgia Melon said last week: “With the outbreak of the crisis in the Middle East, the issue of energy prices has become clearly more important, so, at the European level, we are also seeking the urgent suspension of ETS' implementation in electricity production. ”

A proposal from the European Commission, which acknowledges the system ETS needs a reshuffle, it would be use of revenues acquired by ETS to help industries in EU member states face rising costs.

“We are in a complex world of compromises”, says Georg Zachmann, a specialist in EU energy and climate policies from the Brussels expert group Bruegel.

“If Europe wants to invest in nuclear or renewable energy in order to be more independent and secure on the energy side, this will take time. ”

It describes as “crazy” that southern Italy is not installing more solar panels, for example.

You need a long-term but realistic plan. The EU has one, but the new goals for 2030 and especially 2040 are very ambitious. ”

The EU has set a legally mandatory target to reduce net greenhouse gas emissions by 90% by 2040, compared to 1990 levels. “Are they really reliable? ” he asks.

Zachmann says EU governments are also afraid of costs. “Europe generally wants to extract oil and gas from the [artical] mix, but policymakers are sensitive to cost implications.” And voter reactions.

Politics is also hindering closer co-operation between the EU and the United Kingdom regarding energy, he says.

“at the sector level, both energy representatives in the EU and the United Kingdom want to work more together, because that makes a lot sense. From a purely economic perspective, everyone would benefit. ”

But the shadow of Brex's policy depends on the conversation, he says. After all, the EU leaves the country to the European Court of Justice to ensure that the bloc's only market will function properly. And the UK does not accept this. ”

Russia's Dan Marks says the EU should think more flexiblely and that the UK should be more ambitious when it comes to energy co-operation.

The reality Europe faces will constantly unite both sides”, he says. “The United Kingdom has the largest open-air power fleet and larger plans for the North Sea, while the British government would like to ensure that in a crisis, France will not cut off power supplies to the United Kingdom”, he adds. There is a mutual interest in guaranteed energy security.

So will Iran's war be a turning point in achieving Europe or at least making significant steps in achieving better energy security?

Whenever there is an oil and gas crisis, everyone thinks it's a turning point”, Marks says.

“Think about the 1970s and 1980s and the American Congress that reviewed lowering energy dependence and consumption. Now it's 2026 and there it is, there's another gas crisis and we're just as exposed as we've always been. ”

There is no doubt that this is an important moment. EU leaders meeting in Brussels are well aware of that. The question is whether they will have unity, or courage, to change much. / BBC