The Iran war has thrown global oil and gas flows into chaos and the prospect of Donald Trump easing US sanctions on Russian oil to fill the gap is causing a nightmare for the EU.
The European Council president, António Costa, who represents the EU’s leaders, said on Tuesday the only winner from the ongoing conflict would be Vladimir Putin, who could step into the gap created by the throttling of Gulf supplies.
So how are Brussels and individual member states reacting to a crisis that in just 24 hours sent the oil price to almost $120 a barrel, before swinging back to nearer $90?
European Union
The European Commission urged the US on Tuesday to strictly enforce the G7 price cap on Russian oil after Washington said on Monday it was waiving certain oil-related sanctions as a way to cool the global oil price surge.
While Russian crude oil was capped by the EU and the UK at $44.10 per barrel on 1 February to ensure it remains 20% below the trading price, other countries not covered by the sanctions – including China – are buying at market rate, filling the Kremlin’s coffers.
“It is very important to strictly enforce the G7 price gap and potentially move to the full maritime services ban to limit Russia’s war revenues, because the opposite would be self-defeating,” said the European economic commissioner, Valdis Dombrovskis.
EU commissioners discussed potential measures last Friday to ease the burden of high oil and gas prices on consumers and industry, including changes to energy taxes and amending the EU carbon price, which accounts for roughly 11% of industries’ power costs.
They were due to hold a video call on Tuesday afternoon to discuss joint responses such as potentially cutting taxes on oil in a coordinated manner.
Data from Eurostat, the EU statistics agency, shows that so far this year the EU buys the largest portion of its oil by value from the US, with 15% coming across the Atlantic, followed by Norway at 14%, Kazakhstan 13% and Gulf states 12%.
But with energy prices already among the highest in the world, the global price shock has exposed key vulnerabilities in the bloc’s economies.
France
The government is to carry out inspections in 500 petrol stations amid fears of excessive fuel price rises. The prime minister, Sébastien Lecornu, said inspectors would visit sites across the country between Monday and Wednesday to ensure companies were not exploiting the situation.
“The war in the Middle East must not become a pretext for abusive prices at the pump,” he said.
Italy
Italy has threatened to raise taxes on companies seen to be profiteering from soaring wholesale prices for oil. “I am very determined to do what I can to prevent speculators from exploiting the crisis at the expense of families and businesses,” the prime minister, Giorgia Meloni, told Italian TV.
Taxes are, however, a significant part of the cost of energy to consumers and small businesses, making up 25% of the total.
Germany and Austria
Germany’s chancellor, Friedrich Merz, said the country saw no reason to consider easing sanctions on Russia, arguing that solidarity with Ukraine must take precedence despite pressure from global energy markets.
If the US-Israeli war with Iran ended quickly “we will also see a relatively rapid return to normalisation on the oil and energy markets” so there was no need to reduce the pressure on Moscow, he said.
“Faced with the choice between sanctions and solidarity, our position is clear: we stand with Ukraine and are prepared to endure such a phase if necessary,” Merz added.
Austria’s conservative chancellor, Christian Stocker, who heads a three-party ruling coalition, called on Monday for taxes on petrol to be cut temporarily to counter the effect of oil prices driven up by the war in Iran.
Hungary and Croatia
These are the first two EU countries to announce a price cap, with Croatia setting the price in forecourts at €1.55 per litre and €1.50 for unleaded.
In addition to a similar cap in Hungary, the pro-Russia Hungarian leader, Viktor Orbán, announced the government would release state reserves.
He also urged the EU to suspend sanctions on Russian energy, although Hungary along with Slovakia already have exemptions from EU restrictions on Russian gas imports, and more recently got a one-year exemption from US-imposed sanctions in exchange for commitments to buy liquefied natural gas from the US.
Other EU states
The Sweden-based airline SAS said it would introduce a temporary price increase due to soaring oil prices.
In Ireland there is concern about the soaring cost of heating oil, with natural gas only available in about a third of homes and many rural properties reliant on paraffin for hot water. However, the coalition government is resisting calls for immediate intervention. In the past it has acted against price gouging at petrol pumps.
