European Union Warns of No Respite From Oil and Gas Prices Even After Iran War Ends

The European Union warns of long-term energy inflation and unveils coordinated measures to diversify supply and decouple gas prices from electricity costs.

On March 31, Dan Jørgensen, the European Union (EU) energy commissioner, warned of oil and gas prices continuing on an inflationary path with no return to normalcy expected anytime soon even if peace were “to be declared tomorrow”. Although the 27-member bloc faces no immediate shortages of oil and gas supplies at present, the pressure on diesel and jet fuel supplies is significant due to “increasing constraints” in global gas markets. With electricity prices soaring as a result, Jørgensen highlighted the EU executive arm’s concerted efforts to put in place a range of measures to help families and businesses cope with the current crisis that has caused price hikes of around 70% for gas and 60% for oil in the continent.

Furthermore, since the start of the war, there has been a rise of €14bn in EU’s bill for imported fossil fuels. Jørgensen called for all EU member states to closely coordinate their actions to “avoid fragmented national responses and disruptive signals to the markets.” He noted that preparatory measures were being deliberated and an agreed set of steps to make it easier for states to disassociate gas prices from electricity prices would be unveilved soon. EU Commissioner Ursula von der Leyen’s suggestion of initiating a cut in electricity charges is also being considered to ease the pressures of rising prices. Also on the cards is levying a one-off “windfall tax” on large oil and gas companies, even though a repeat of the 2022 natural gas crisis where such companies made large profits from surging prices is unlikely.

Moreover, the EU has announced measures to incentivize states’ efforts to provide financial support to vulnerable groups and industries under “extraordinary stress.”  Jørgensen also encouraged countries to incorporate the International Energy Agency’s 10-point plan, which includes provision of work from home, reducing motorway speeds, promoting public transport, and increasing car-sharing. With Russian gas purchases being restricted due to the Ukraine War, the EU is diversifying its energy sources from countries like Azerbaijan, Algeria, and Canada, in addition to smaller producers worldwide. CIO Bulletin views these mitigatory measures as a welcome step to ensure EU states’ economic growth is unhindered by advocating for conserving their energy sources while receiving uninterrupted oil and gas supply from alternate sources.