EU debates how to curb energy costs as Iran war hits markets

European Union energy ministers on Monday debated ways to curb the impact of a surge in energy prices caused by the US-Israeli war on Iran.

The bloc's heavy reliance on imported oil and gas means it is highly exposed to global price swings - leaving some officials and analysts doubtful that the EU can find quick fixes.

The European Commission, the EU executive, is drafting emergency measures that include examining state support for industries, cutting national taxes, and using an upcoming revision of the EU carbon market that would lower carbon prices by increasing the supply of emissions permits, according to EU officials familiar with the discussions.

COMMISSIONER SAYS SUPPLIES ARE SECURE

"We are in a price crisis," EU energy commissioner Dan Jorgensen told reporters ahead of the meeting. He also said the bloc's oil and gas supplies were secure - since most come from the US, Norway and other suppliers that are not directly affected by Middle East production cuts.

Jorgensen said Brussels was preparing "targeted, short-term" measures that should avoid an overhaul of Europe's electricity market design, despite governments including Austria suggesting the bloc look into this.

Germany, Romania and Sweden ruled out reversing Europe's phase-out of Russian gas, as a way to curb costs. Hungary last week asked Brussels to lift sanctions on Russian energy.

"Gas supply from Russia would mean returning to an absolutely insecure situation and supporting a warmonger. That is out of the question," German Energy Minister Katherina Reiche said.

Commission President Ursula von der Leyen has said Brussels was also considering capping gas prices. A gas price cap introduced after Russia's 2022 invasion of Ukraine was never implemented and some countries voiced concern it would limit Europe's ability to secure fuel supplies from global markets if prices surged in a crisis.

Von der Leyen will send EU leaders a shortlist of emergency options this week, ahead of a summit on Thursday.

GAS PRICE SURGE PUTS PRESSURE ON GOVERNMENTS

European benchmark gas prices have increased by more than 50 percent since the Iran war began last month.

Some governments, including Italy, want a sweeping EU intervention - such as suspending the bloc's carbon emissions trading system, to curb the influence of CO2-emitting gas plants on power prices.

Poland, a long-time critic of the ETS, on Monday struck a more cautious tone.

"The market and the investors need stability, so we cannot, from one day to another, suspend the rules," said Energy Secretary of State Wojciech Wrochna, noting that proceeds from the ETS are returned to national budgets. "We cannot cut the revenues from one day to another."

Some governments expect Brussels to focus its proposals on national tax cuts, or domestic subsidies, “to pass the ball back to the member states for the major measures,” one EU diplomat said.

But that risks widening inequalities between wealthy and poorer EU members.

Of the more than 500 billion euros ($571 billion) EU governments spent on support measures during the 2022 energy crisis, 158 billion euros came from Europe's biggest economy Germany, according to the think-tank Bruegel.

Joanna Pandera, head of Poland's Forum Energii think-tank, said countries' different energy mixes and taxes meant prices varied significantly across the 27-member EU.

"There are structural reasons why energy prices in Europe are high," she said.