by Ross Elwood
BRUXELLES (Public Policy Europe) – It’s been a confusing week, as President Trump continues to change positions on the Iran war, with energy markets responding to each pronouncement. The EU is trying to understand how bad the energy supply shock will be, which is largely dependent on the length and objectives of the war.
THE FACTS
EU-UK Electricity Market Negotiations: On Monday, the EU Council formally authorised the Commission to open negotiations with the United Kingdom on participation in the EU internal electricity market and on an appropriate UK financial contribution to cohesion policy.
Hungary-Russia: A phone call between Hungarian Foreign Minister, Peter Szijjarto, and his Russian counterpart, Sergei Lavrov, coordinating Hungary’s approach to the EU sanctions list was published. High Representative Kallas responded by saying that European ministers should work for Europe and not for Russia.” Polish Prime Minister Tusk responded by saying, “Hungary is and will be in the European Union. Victor Orbán and his foreign minister left Europe long ago”.
Package Travel Directive: On Monday the Council of the EU gave final approval to the agreement reached in December with the European Parliament on the amendment of the directive on package travel. The new directive will enter into force twenty days after its publication in the Official Journal, but to become fully applicable it must be transposed within 28 months by the Member States.
France, Italy, Spain Call for Suspension of CBAM: On Monday, during the Agriculture Council, France, supported by Italy and Spain, requested a targeted and temporary suspension of the Carbon Border Adjustment Mechanism to support farmers facing rising fertiliser prices caused by the war in the Middle East. The Spanish minister stated: “Forty-nine percent of urea fertiliser and thirty percent of ammonia transit through the Strait of Hormuz.”
Package and Waste Regulation: On Monday the Commission published guidelines for the implementation of the packaging and packaging waste regulation (PPWR). The guidelines aim to give better clarity to stakeholders. The Commission stated that several delegated and implementing acts are also being prepared.
FAO Job: France will support the candidacy of the former European Commissioner, Phil Hogan, for the position of Director-General of the Food and Agriculture Organization of the United Nations (FAO). This was stated by the Minister of Agriculture, Annie Genevard, upon arriving at the ongoing EU Council in Brussels.
THE ANALYSIS – THE RETURN OF THE ENERGY CRISIS
Something in the space between last week and this week has changed for EU leaders on the energy crisis caused by Trump’s war in the Middle East. It has suddenly become much more serious. Whereas before Brussels was at pains to note that it was a temporary spike, this week Dan Jørgensen has stated very strongly that this is a much deeper crisis that will be with us for quite a while. He also said that it is different (if not worse) than the energy crisis during COVID, as it is not just about gas but also about oil, diesel, and jet fuel. Jørgensen has started to strongly push demand reduction measures and said we are close to a situation where demand reduction is necessary. This was stated during an extraordinary Council meeting of EU energy ministers.
German Chancellor Friedrich Merz and Irish Prime Minister Micheál Martin also both warned about the severity of the situation, with Martin saying that it would probably be worse than the 1970s oil crisis, which reduced 7% of global oil supply (note that the Gulf crisis has reduced around 20% of global energy flows). Part of the problem is that although Europe gets only a relatively small share of its gas from the Gulf (around 10–15%), many Asian countries are much more dependent on it. That means with less supply, Asian buyers are outbidding the EU for LNG cargoes, so shipments can be redirected away from Europe, tightening supply and pushing up prices.
This is all on the condition that the war does not end soon and the Strait of Hormuz is once again open for business. But ‘soon’ here means in the next week or two. So keep a close eye on how this develops next week after the Easter holidays. The political reaction should hit full swing, and this issue could blow up big time if Trump continues to flip-flop.
A few things to watch out for: the delayed political reaction, which should come into full effect next week when the Parliament returns from the Easter holidays; the outcomes of the meeting of the ‘coalition of the willing’ to re-open the Strait of Hormuz; and whatever the hell Trump does over the next week – the president has been more unpredictable than ever with this war as he scrambles to find a win.
THE ANALYSIS – EU FEARS INSTABILITY CAUSED BY TRUMP
As Public Policy Europe previously wrote about in February, after the informal EU leaders’ Council amid the Greenland crisis, EU leaders for the first time discovered their resolve against Trump and were pleasantly surprised to see that it worked. Public Policy Europe discussed whether this was a permanent change in Europe’s relationship with Trump, and the Iranian war and crisis has shown once again that European leaders have demonstrated very strong resolve and unity in their rebuffing of Trump, who wants them to get involved in the war.
It seems as if EU leaders have had enough of Trump’s rhetoric for many reasons: not being informed in advance, a blatant disregard for international law, and a disregard for the consequences, but above all because of his instability. This has led Trump to become quite upset with Europe in the form of NATO, with him threatening to pull out of the alliance, and Marco Rubio stating that the US will need to “examine” its relationship with NATO in the aftermath of the war.
But how far will this go? Is there a point at which EU leaders will back down? Because as previously stated, and as our previous article noted, Europe’s greatest fear is not losing the EU–US relationship, but instability. It made a bet that even with Trump it could salvage stability in the EU–US relationship, but if it cannot, then it will search elsewhere. This is, however, complicated by the security blanket provided by NATO. Even the Eastern European EU members, who are the main backers of not upsetting Trump, are finding it difficult to support him, because it is unclear what he wants them to do.
THE ANALYSIS – ETS SCALE BACK BEGINS
On Tuesday, the European Commission published the first of its upcoming changes to the ETS, a climate law that makes industry pay for polluting. The ETS was one of the major targets at the recent EU leaders’ summit two weeks ago, held during the midst of the high energy prices crisis caused by the beginning of the war in Iran. Council conclusions called for the Commission to “present a review of the emissions trading system (ETS) by July 2026 at the latest, to reduce the volatility of the carbon price and mitigate its impact on electricity prices”.
The first of these changes is an amendment to the Market Stability Reserve. It is a quite technical minimal change that aims to lower prices when needed; however, the bigger changes will come with the full review of the ETS, which is due to be published in July.
Don’t underestimate the Parliament’s love for the ETS. It was one of the key climate laws struck during the last mandate, and the Parliament was instrumental in its construction. Now, with the S&D and Greens being especially concerned about the de-regulation rollback in the form of ‘simplification’ they will be very nervous about these proposed changes, which the Parliament will have a major say on during the legislative process. (Public Policy Europe)
