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Europe braces for a winter of two wars – POLITICO

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Last winter, Europeans confronted exorbitant vitality payments because the Continent quickly weaned itself off Russian gasoline. This yr the EU is healthier ready — however now a second warfare additionally threatens to roil its vitality markets.

The battle between Israel and Hamas threatens to disrupt Europe’s relationships with the Middle East, and even draw Iran into direct confrontation with Israel and its Western companions. While markets are comparatively calm for now, both of these situations may trigger chaos.

Nevertheless, Europe is “equipped to face oil and diesel global market tightness,” Energy Commissioner Kadri Simson informed POLITICO in an interview. Officials have discovered classes from Russia’s warfare on Ukraine, and are working to construct “a good understanding of all our vulnerabilities to best address them and how we can be prepared for any incidents or emergencies.”

EU officers have held a slew of conferences with oil-producing nations in latest weeks, each outdated associates like Norway and rising companions resembling Algeria and Nigeria, to get forward of any potential disruptions, she mentioned.

“After the Gaza crisis unfolded, we are faced with two conflicts in the European neighborhood. The Eastern Mediterranean is an important theater for European energy security, as Europe’s energy transition is still entangled in geopolitical uncertainties,” Simson mentioned, attributing the dearth of drama within the markets to “the preparedness and crisis management that the EU put in place to respond to Russia’s energy blackmail.”

Fighting in Gaza and, to a lesser extent, alongside Israel’s northern border with Lebanon has had solely a restricted influence on oil markets. Prices initially rose on the information of the assault by Hamas militants on October 7 and Israel’s huge response, however key crude benchmark Brent dropped again by 4.2 % this week to round $81 per barrel, across the ranges seen earlier than the beginning of the violence.

Markets have prevented a repeat of 1973, when the Yom Kippur War between Israel and its neighbors prompted the large Arab producers, led by Saudi Arabia, to embargo their exports to Israel’s allies. Gulf nation relations with Israel have improved markedly prior to now 50 years: The UAE and Bahrain acknowledged its sovereignty underneath the 2020 Abraham Accords, whereas Saudi Arabia is in negotiations to do the identical.

Traders are subsequently betting that so long as the battle does not develop, provides of oil will stay roughly secure, mentioned Viktor Katona, lead crude analyst at vitality intelligence agency Kpler.

The threat stems extra from Iran, he mentioned. In the worst case, an enlargement of the battle may trigger Iran to disrupt transport from Gulf Arab nations by means of the Strait of Hormuz. Iran’s personal crude oil, whereas sanctioned by the West, is exported in massive portions to China. “If Israel starts to strike the Iranian territory and Iran as a consequence needs to export less, then China doesn’t have enough crude and needs to buy from somewhere else,” sending world costs rocketing, Katona mentioned. “It’s an entire spiral that gets triggered immediately.”

While Iran’s theocratic management has constantly vowed to destroy the state of Israel and publicly endorsed Hamas’ assaults final month, it denies involvement of their planning and execution. The Israel Defense Forces say they’ve carried out strikes on militant teams in Syria with shut hyperlinks to Iran’s Islamic Revolutionary Guard Corps, however have up to now stopped brief of hitting targets inside Iran itself.

Lessons discovered

Gas markets felt a extra quick influence from the warfare. Israel turned off the faucets at its Tamar offshore gasoline area within the hours following Hamas’ shock assault, amid stories that it was a goal for rocket assaults. While Israel produces solely comparatively small portions of pure gasoline — round 21 billion cubic meters final yr, in comparison with Russia’s 618 billion — it’s a key exporter to neighboring Egypt, and the downtime worsened common rolling energy outages there. The stream has since been resumed, albeit in smaller portions.

Any escalation with Iran may have an effect on gasoline in addition to oil markets, given a third of the world’s liquefied pure gasoline and a sixth of its oil is shipped by means of the Strait of Hormuz. “If things stay as they are there’s no problem, but if there’s a war where Iran was included and they [block trade through] the Hormuz strait then prices will go up for sure,” mentioned one EU diplomat with information of inner vitality technique talks, granted anonymity to talk candidly.

However, “all the big players want to avoid escalation, Iran wants to avoid this” as a result of of risk of sanctions, the envoy insisted.

Absent that dire situation, the influence on EU gasoline markets is more likely to be restricted, says Tom Marzec-Manser, head of gasoline analytics at commodities intelligence firm ICIS — however extra as a result of of the final battle than the latest one.

“From a European gas pricing perspective, we’re still looking relatively OK and that’s been driven largely by weak demand. Many industrial consumers continue to use noticeably less gas than they did prior to the energy crisis last year, so consumption in Europe has remained low,” he mentioned.

According to the European Commission, member states collectively shaved virtually 20 % from their pure gasoline use within the run-up to final winter, with trade slowing output and renewable energy enjoying a a lot bigger position in electrical energy technology. Despite that, consumption really rose in October for the primary time because the begin of the warfare, in an early signal that companies may very well be tentatively attempting to revive misplaced productiveness.

But despite the fact that the bloc’s gasoline reserves are greater than 99 % full forward of schedule, costs have nonetheless remained stubbornly excessive throughout the Continent in comparison with different areas. That means Europeans are extra in danger of short-term spikes in the fee of vitality, with trade probably having to decelerate once more if payments turn out to be unaffordable.

“We are in a much better situation than in 2022,” mentioned Georg Zachmann, a senior fellow on the Bruegel vitality assume tank. “We have more heat pumps, power plants are back in the picture that we didn’t have available last year, and we’ve built more liquified natural gas terminals.” However, he warned, if member states lose concentrate on lowering demand and attempt to give their very own industries a head begin with subsidies, that might spark a wasteful race “that is essentially to everyone’s detriment.”

At the identical time, winter in Europe is not what it was. Record-breaking temperatures have been recorded throughout the globe for the previous 4 months, in accordance with an EU Copernicus satellite tv for pc monitoring report revealed this week, whereas final winter was the second-warmest ever recorded on the Continent. While that could be excellent news for conflict-prone fossil gas provides within the brief time period, it is most likely unhealthy information for nearly every little thing else within the not-so-much-longer time period.

Geoffrey Smith contributed reporting.



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