€100 Billion Extra Bill: How the Hormuz Crisis Threatens Europe's Winter

Europe does not face the risk of running out of oil and gas this winter as much as it faces the cost of obtaining them. Since the end of last February, EU countries have paid more than €100 billion extra for energy imports without receiving any additional quantities of oil or gas.

This comes at a time when the closure of the Strait of Hormuz and disruptions in global energy markets have kept prices at high levels.

In Dublin, European energy ministers met yesterday, Tuesday, to discuss the repercussions of the crisis and prepare for the winter months, while European Energy Commissioner Dan Jørgensen warned that Europe is heading towards a "difficult winter".

Although a severe supply shortage is not expected, inventories and price levels present governments with a complex equation: how to protect households and industry from a new shock in energy bills, while the continent remains exposed to oil and gas market disturbances?

"Difficult Winter"
Jørgensen confirmed that the Union does not expect supply problems, but anticipates "very high" prices for oil and gas, stating: "There is no doubt that we are heading towards a difficult winter".

He added: "In a normal winter, about 50 million people in Europe fail to heat their homes adequately. This winter could be worse. Therefore, we take the situation very seriously, not to mention our industry which is also under pressure".

Since the end of February, with the outbreak of war in the Middle East and the closure of the Strait of Hormuz, the hydrocarbon import bill for the 27 member states has surged sharply.

The Danish Commissioner estimates this "additional energy cost" at more than €100 billion, without "a single additional molecule of gas or oil".

Low Inventories
The Commissioner does not expect a sharp shortage, but points out that gas storage levels are "exceptionally low": 70% on average in the EU, 82% in France, and only 57% in Germany and the Netherlands.

A group of experts monitors the evolution of gas and oil reserves and met yesterday, Tuesday, to assess the oil market, noting "high prices for diesel and aviation fuel".

They observed that inventories in the Amsterdam-Rotterdam-Antwerp commercial hub are below their five-year average but appear stable in recent weeks, with European refineries operating near full capacity, leaving little margin to ease prices.

The positive side: emergency stocks remain at a high level and are available in case of market disruption.

Reducing Consumption
In a letter addressed to ministers before the end of the week, Jørgensen noted that the situation is less critical than after the COVID-19 pandemic or the start of the Ukraine war, thanks to Europe's diversification of supply sources and development of renewable energies.

Therefore, Jørgensen believes the appropriate target for gas storage can be lowered to 80% "to relieve immediate pressure on prices", but he urged member states to take measures to reduce their consumption, especially during peak hours, measure it better, reduce heating in public buildings, and limit street lighting.

Electricity as a Long-Term Exit
Ministers agreed on the necessity of continuing to reduce dependence on hydrocarbons through electrifying needs, where Finnish Energy Minister Sari Mualat pointed out that her country has become 95% independent in electricity production thanks to renewable and nuclear energies.

Jørgensen, who is less enthusiastic about nuclear power, sees the goal remaining "clean energy independence".

The European Union also gave its approval on Tuesday to disburse an exceptional state aid of €25 million to support French fishermen affected by rising fuel prices due to the Middle East crisis.

While several member states - Italy, Germany, Spain, Portugal, Poland, and Austria - demand that the Commission take a stance on a unified European tax on excess profits for oil and gas groups, Jørgensen recalled the possibility of taking measures at the national level, without criticizing initiatives by countries like Ireland which is considering cutting fuel taxes, while warning against "wasting public money".

Methane Rule Postponement and Diesel Standards Relaxation
The Commissioner, along with the Executive Director of the International Energy Agency, Fatih Birol, expressed support for postponing the application of a regulation requiring hydrocarbon importers to document methane leaks associated with production for one year, amid resistance from American producers to this European obligation.

The Commission is also studying another request submitted by France to relax the strictness of diesel quality standards by integrating more agricultural fuels, a relaxation that raises concerns among environmental NGOs.

Added to this already tense context is a new concern: the vulnerability of electrical infrastructure to hybrid warfare waged by Russia against Europe, a topic currently being worked on by member states.

The newspaper "Le Monde" believes that the Dublin meeting reveals a difficult European equation: no expected shortage in supplies, but high prices and declining inventories in pivotal countries like Germany and the Netherlands make the coming winter a real test.

While the Commission bets on a mix of reducing consumption and accelerating investment in clean energy to cut dependence on fossil fuels, the €100 billion extra bill incurred by Europe since the closure of the Strait of Hormuz at the end of February remains evidence that the cost of the war in the Middle East has exceeded regional boundaries to reach directly into European home heating bills.