Energy Price Shock From Iran War Exposes Europe’s Weakness

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(Bloomberg) — Underneath the glass and wrought iron ceiling of Antwerp’s stock exchange last month, French President Emmanuel Macron addressed a hall full of executives from heavy industries. He wasted no time in diving into the issue everyone cared most about: Europe’s perennially high energy prices. 

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It is, he said bluntly, “a weakness.”

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Even before the war in Iran pushed up oil and gas prices and disrupted supplies of key fossil fuels across the globe, energy was a major concern in Europe, where power prices are far higher than in the US and China. Plants have been shut down as costs made them uneconomical, there have been repeated complaints from corporate giants like BASF SE and industries such as steelmaking, and politicians have fretted about how their economic ambitions for the region risk being undone by the problem.

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The fallout from Middle East conflict is upping the pressure to act. This week, gas prices in Europe rose to the highest in three years. The spike probably added at least €1.3 billion ($1.5 billion) to the continent’s energy costs, according to calculations by Strategic Perspectives, a climate think tank.

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Though levels are well shy of the peak seen after Russia’s full-scale invasion of Ukraine, the latest moves come amid an increasing drumbeat of calls to cut prices. 

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“This is really happening at the wrong time — we are very exposed to the global energy market, both in terms of prices and in terms of volume,” said Anne-Sophie Corbeau, research scholar at the Center on Global Energy Policy in Paris. “Industry is going to be thinking, ‘oh no, not another crisis.’ There aren’t any magical solutions.”

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It’s fueling a frantic rush for action. Proposals have ranged from scrapping taxes to ditching costly climate policies, yet critics say that jeopardizes Europe’s ability lower energy costs in the longer term by building out renewables. 

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In Brussels, the scale of the concern is clear. At one meeting this week, senior EU officials warned member states that the Iran war shows that solving energy is “existential” for the bloc, according to a person familiar with the matter.

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Leaders are set to hold a summit on March 19, when they will direct the European Commission to propose ways to cut prices and help industries.

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One look at the decisions being made in corporate offices bears out the worries. The squeeze from energy costs is reshaping the industrial landscape, pushing companies to slow investment, shelve decarbonization projects and shift capacity elsewhere.

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Versalis, the chemicals unit of Eni, is closing plants, highlighting how energy-intensive industries are reassessing whether Europe remains a competitive place to operate.

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BASF Chief Executive Markus Kamieth has said that Europe “is losing industrial capacity at a speed we have never seen before.”

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Energy Needs

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The EU finds itself at a critical juncture. Not only is it fighting to save industries, boost competitiveness and keep up with the AI revolution — which will require power-hungry data centers — it’s also trying to boost its defense capabilities.

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To meet those objectives, it will require vast amounts of energy in the coming years. Right now, it’s far from clear whether it will have enough, and at a cheap enough price.