Not many politicians’ hearts are sent racing by the prospect of a debate on structural reforms of the European Union’s single market.
A summit of the EU’s 27 leaders in Brussels on Thursday had been arranged to give momentum to internal tweaks that might give Europe more of an economic edge. All that has been overtaken by the war in Iran and soaring energy prices.
European governments remember the cost of living crisis caused by the sustained spike in energy prices after Russia invaded Ukraine. The EU-wide inflation rate hit a record 9 per cent in 2022, reflecting a significant hike in the cost of fuel, construction materials, groceries and plenty else.
Painful increases in utility bills, the cost of a supermarket shop and a tank of petrol or diesel can be fatal for an incumbent government. The perception that an administration has a handle on things can be very difficult to win back once it has been lost.
Steep energy costs would also put pressure on Europe’s industrial base, already under strain.
Nobody expects this European Council summit of leaders to deliver a rebuke of the US and Israel’s decision to open up a war with Iran. Spain’s left-wing prime minister Pedro Sánchez is again a lone voice forcefully calling out the military strikes.
Instead, an early draft of a communique EU leaders plan to issue after the summit repeats previous appeals for “de-escalation and maximum restraint”, the protection of civilians and “full respect of international law by all parties” in the conflict.
The war in Iran, which has drawn in Gulf states and Lebanon, and seen key trade lanes shut, threatens “regional and global security”, the draft statement says. The EU will be “closely monitoring” the impacts of the conflict, specifically its effect on “economic stability”.
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In a letter to leaders before the summit, European Commission president Ursula von der Leyen said the “seismic” shock of the war was already having “profound” knock-on effects in Europe. Everyone is hoping the surge in the price of oil and gas is short-term.
“We have been here before, whether with Ukraine, the pandemic or the energy crises,” von der Leyen, the head of the EU’s executive arm, wrote in the March 16th letter.
So what’s the plan?
US president Donald Trump’s demand that Nato allies send military ships to unblock the Strait of Hormuz hasn’t seen anyone leap to help Washington.
About a fifth of the world’s supply of oil and gas is shipped through the choke point, which Iran, as expected, blocked at the start of the war.
That includes about 8 per cent of the liquefied natural gas imported by the EU, coming from Qatar, and 7 per cent of the bloc’s oil, bought from several Gulf states.
Even though oil and gas shipped through the strait accounts for a small portion of Europe’s total energy supply, the disruption to the global market has led prices everywhere to shoot upwards.
[ Trump takes aim at Nato, Keir Starmer and Europe in meeting with TaoiseachOpens in new window ]
Governments already have some leeway to subsidise energy-intensive industries hardest hit by the crunch. The commission intends to tweak state-aid rules to give national capitals more flexibility.
A separate emergency clause can be triggered to allow governments to intervene and restrict the effect of high gas prices on electricity costs.
Von der Leyen will probably make the case during the summit that all this underlines the need for better connection of Europe’s energy market beyond national borders and to pick up the pace in the move to renewables.
Taoiseach Micheál Martin has said the Irish Government is drawing up a package of “targeted” supports to help lower income households cope with a hike in energy bills.
“The crisis that we are facing now … is not as serious yet as the crisis that we faced in 2022,” one senior EU official said.
Brussels officials and national capitals are waiting to see whether the war can be brought to an end in a few weeks, or if the world is in store for a protracted conflict.
The likelihood of regime change in Iran is judged as low, barring a (very unlikely) major escalation where US boots hit the ground in numbers.
Americans are feeling the pain at the gas pump, a factor that may press Trump to declare mission accomplished and walk away, leaving the Iranian regime deeply wounded but intact, and bearing a big grudge.
Besides the economic knock from higher energy prices, a further souring of Trump’s view of Europe for failing to “help” the US in Iran may come into play down the line. Perhaps in the next round of the tariff saga, in Ukraine, or a new rift entirely.