Europe’s united front has surprised Russia and there might be more surprises to come
The EU last week announced its eighth package of sanctions against Russia, including a cap on oil prices, surprising some with the scale of its ambition. Yet it is unlikely to mark the end of the major steps Europe is taking against Moscow, with presidents and prime ministers from the bloc due to meet again in the coming week to try to push ahead with a landmark cap on gas prices as well.
The debate over sanctions is just one of the signs that EU leaders can feel the “hand of history” on their shoulders. With the inaugural meeting of the new European Political Community, a forum that includes more than 40 EU and non-EU nations, taking place last week, October is proving to be a potentially game-changing period for the wider European continent.
This forum plans to convene twice a year, with upcoming meetings due to take place in Moldova (a key EU accession state), followed by Spain (a key EU member) and then the UK (the only state ever to have left the EU).
Key outcomes from the initial EPC meeting included the UK likely securing its return to the North Sea Energy Cooperation group, from which it was required to withdraw as a result of Brexit.
Yet the launch of the EPC might not be the only historic development in the region this fall, with the prospect of a European cap on gas prices becoming a growing possibility. While the challenges in reaching a bloc-wide consensus on the issue are huge, the EU-27 has consistently surprised of late with the scope of its measures targeting Russia, and the European Commission is expected to release its final proposal for gas prices on Oct. 18.
Currently, gas prices across Europe are about four times higher than a year ago and more than 11 times the price in 2020. Therefore the political imperative to act is high. Those pushing for a cap, who now include European Commission President Ursula von der Leyen, hope it could be agreed as soon as a summit of 27 presidents and prime ministers on Oct. 20 and 21.
However, that is likely to prove too optimistic a timetable. If a deal is done, it might not happen until at least November, after a meeting of Europe’s energy ministers on Oct. 25.
The momentum behind a price cap, at least on wholesale prices both for imports and intra-EU gas transactions, is supported by almost a dozen and a half countries, including Belgium, France, Poland, Portugal, Slovenia, Greece, Italy and Spain. This significant degree of support perplexes many observers, given the wide-ranging challenges associated with such a reform.
While the challenges that remain in reaching such a bloc-wide consensus are huge, the EU-27 has consistently surprised observers with the scope of its actions following the invasion of Ukraine.
Elisabetta Cornago from the Center for European Reform think tank, for example, has described the gas price-cap proposal as “kind of a cry for help. The bloc has run out of low-hanging fruit to address the energy crisis and is gradually moving away from orthodoxy, despite the potential perils the shift entails.”
So a European consensus might not be possible, especially given the wide range of competing proposals in play. Moreover, some countries, including The Netherlands and Germany, remain strongly opposed to any such measure.
Separate from any potential price cap, von der Leyen last week laid out a wider energy road map that includes at least four key elements.
Firstly, it calls for action to try to maintain the security of gas supplies while reducing the price of imports. Brussels is stepping up negotiations with longstanding suppliers such as Norway, the nation that has replaced Russia as the EU’s biggest supplier of gas. Norway said in a joint statement with Brussels last week that it wants to help “rethink and reshape Europe’s energy security.”
Von der Leyen also wants to build a more robust European “energy platform” to help secure greater access to global gas supplies. She wants this to happen before the next filling season in the spring. Moreover, if the initiative works well, it could become a template for wider energy strategies as well, including renewable hydrogen.
Secondly, she wants to boost investment to help accelerate the transition to energy independence. She strongly believes that money pumped into infrastructure such as pipelines and energy efficiency will reduce future energy-price shocks.
Thirdly, the European Commission will double down on structural reforms of the electricity market. By Christmas, von der Leyen will present ideas for reforms designed to deliver an electricity market that is more fit for purpose in a decarbonized future.
Fourthly, the commission is formulating a range of measures intended to enhance preparedness, stress testing, response, international cooperation and information exchange within the EU’s energy infrastructure. This follows the recent disruption of the continent’s Nord Stream pipelines, which was widely blamed on sabotage.
This debate about the gas and electricity markets builds from the EU’s approval last week of an eighth package of sanctions on Moscow, the cornerstone of which is the introduction of a price cap on the seaborne trade of Russian oil. The fine details of that measure are still to be finalized, however, and Europe is now in consultation with Western partners about those, including the price range.
While Moscow is deeply unhappy about the cap on oil prices, it will be livid if a similar cap on gas is agreed as well and has already threatened to cut off all gas supplies to Europe.
While the challenges that remain in reaching such a bloc-wide consensus are huge, the EU-27 has consistently surprised observers with the scope of its actions following the invasion of Ukraine and so it should not be ruled out.
- Andrew Hammond is an associate at LSE IDEAS at the London School of Economics