Turning on the heating, running a washing machine or keeping a factory blind up has become, overnight, a luxury. Faced with the economic asphyxiation that threatens citizens and companies, the European Union has crossed the Rubicon: the free energy market, as we knew it, cannot sustain this crisis, and Brussels is preparing a drastic intervention to lower the bill at any cost.
Un global market on fire. The epicenter of this new financial earthquake is in the Middle East, as we have been telling these days in WorldOfSoftware. The Price of oil in international markets continues to suffer shocks; as the firm points out Sparta Commodities a EUobserverit is the “largest daily movement since 1988.” Investors assume that the blockage in the region will cause real cuts in the global supply of crude oil, leaving behind the idea of a simple logistical delay in ships.
Gas has not been left behind. As detailed BloombergEuropean natural gas futures—the Dutch benchmark—soared 30% in a single day, reaching €64/MWh. Europe emerges from the winter with its reserves depleted and is now facing an all-out war with Asia to obtain the scarce shipments of Liquefied Natural Gas (LNG) available for the summer.
The daily roller coaster of the bill. To understand why this crisis punishes the consumer so much, we must look at how the price of electricity is formed hour by hour. An analysis of Financial Times shows how prices in Europe now suffer from wild volatility.
The example of last March 4 is devastating: at the height of the solar peak (2:00 p.m.), a megawatt hour in Denmark cost just 26 euros; Just three hours later, after the sun set and the gas plants came into play, the price catapulted to 430 euros. This “roller coaster”, with jumps of up to 1,700% in one afternoon, has been replicated with the same harshness in the Netherlands, Germany and Belgium. Gas thus imposes a “law of luxury” every time the sun disappears, preventing the industry from planning its production.
Intervene “whatever the cost.” With a heavy industry (steel, chemicals, aluminum) on the brink of the abyss – it is worth remembering that, according to a European Commission document cited by Euronewsindustrial electricity in the EU was already twice as expensive as in the US and China before this crisis—Europe has decided to act. According to the documents discussed by the European leaders to which he has had access Euronewsthe emergency plan seeks quick relief by putting the scissors directly into the bill in three ways:
- National tax cuts: Which currently vary enormously and can amount to up to 22% of the electricity bill.
- Cap on tolls and network charges: Which represent 18% of the bill for large industrial consumers.
- Review of carbon emission costs: Which add 11% to the cost of electricity generation.
The intervention beyond of tax cuts. The Prime Minister of Italy, Giorgia Meloni, has toughened her tone towards companies. In statements cited by Euronewswarned: “We will do everything possible to stop speculation. I am ready to react, if necessary, including by increasing taxes on companies that speculate on prices through energy bills.”
Furthermore, the panic button for strategic reserves has been activated. As explained Reutersthe finance ministers of the G7 and the EU are negotiating to release part of the 1.4 billion barrels of strategic reserves that Europe keeps to flood the market and artificially sink prices.
The impact of not intervening in time. Bloomberg details the case of Domo Chemicals, a plant in the German industrial city of Leuna, which has had to declare insolvency consumed by energy costs. This erosion of the industrial fabric also coincides with a delicate political moment in Germany, where the conservative party (CDU) of Chancellor Friedrich Merz has just suffered an electoral setback against the Greens in the regional elections in Baden-Wuerttemberg.
The Spanish shield. Despite the urgency, the overall European response is being fragmented. EUobserver notes that Ursula von der Leyen has proposed expanding the Caspian Sea oil and gas corridor as a patch. Ironically, the only royal coat of arms right now is Spain. As highlighted by this same medium, the Spanish market has registered the lowest and most stable prices this week thanks to its gigantic previous investment in renewable energies, partly isolating its system from fossil volatility.
Finally, the markets have experienced a slight respite thanks to geopolitics. According to the latest update of BloombergEuropean bonds rebounded and gas fell 17% on Tuesday after US President Donald Trump predicted the conflict with Iran would be resolved “very soon.” However, investors assume that if the war drags on, prices will remain high for a long time.
Waking up to reality. With 67% of its consumption still tied to imported fossil fuels, the bloc is aware that depending on Middle Eastern trade routes is a huge risk for its economy. Until now, the European Union trusted that the free market would solve consumer problems and guarantee the best prices.
This energy crisis has shown that this is not always the case. The authorities now assume that, in extreme situations, intervening in bills, capping profits and emptying state reserves is the only viable solution. Whatever the cost, Europe has decided to take control to ensure that turning on the lights is not a privilege reserved for times of peace.
Imagen | Freepik y Haydn on Unsplash
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