Brussels dusts off 2022 playbook in bid to tackle yet another energy crisis

Good morning. A scoop to start: The EU’s six biggest economies are calling for large stock exchanges and other financial entities to be supervised by an EU-level body, in a major step towards longstanding efforts to unify the bloc’s capital markets, according to a letter sent to the European Commission and seen by the FT.

The oil price has surged back above $100 a barrel overnight, after markets were rattled by more attacks on ships in the Gulf. Today, our energy correspondent reports on how the EU has turned back to its 2022 manual to respond to the Iran war-provoked energy crisis, and our Dublin correspondent has news of a new Ireland-UK defence deal.

Here we go again

Energy price caps, emergency oil reserve releases and electricity market reforms: Europe’s response to the Iran war energy crisis so far feels rather like déjà vu, writes Ian Johnston.

Context: To mitigate rising prices as a result of the Middle East war, the International Energy Agency yesterday brokered the release of a record 400mn barrels of national oil reserves, and the European Commission is reviving the prospect of price caps. Both resemble measures taken in response to Russia’s invasion of Ukraine four years ago.

MEPs in Strasbourg were treated to some of 2022’s greatest hits yesterday when Commission president Ursula von der Leyen raised the prospect of gas price caps and defended the design of Europe’s electricity market.

The fact Europe is resorting to measures last discussed during the previous energy crisis underlines the limited options at Brussels’ disposal and the continent’s continued dependence on imported fossil fuels.

Europe has replaced reliance on Russian gas with American and, to a lesser extent, Qatari liquefied natural gas. This means it does not face the same scale of supply crunch and price increases as in 2022, but businesses and consumers are still facing higher bills.

The details of the redux price caps have not been fleshed out by the Commission. Von der Leyen said that the EU could use caps when gas sets the price of electricity, which, under the marginal pricing system, often happens whenever there is not enough renewable power to supply to the grid. 

In recent days, both von der Leyen and her energy commissioner Dan Jørgensen have ruled out revisiting the overall electricity market design — by which gas is often the marginal price setter — as called for by some eastern member states. They have also in effect discarded Italian calls for a suspension of the bloc’s emissions trading system.

With few solutions to the current crisis, multiple diplomats point to the need to speed up electrification. Spain, which has a high share of renewable energy, has recently experienced lower energy price swings than other countries when expensive gas has set prices.

Draft conclusions for next week’s EU leaders’ summit call for agreement on the recently announced grids package to improve electricity infrastructure by the end of the year.

In the meantime, von der Leyen has also opened the door to another 2022 classic: more state aid to offset the impact of higher energy prices.

But today’s weaker economic growth as a result of the previous crisis means that any public support would “mirror the 2022 playbook but probably on a smaller scale”, note analysts from Eurasia Group.

Chart du jour: Mamdani effect

Emmanuel Grégoire, the Socialist frontrunner for mayor of Paris, believes that a “new left wave” is rising in large cities as local politicians use progressive policies to counter the far right.

Extending a friendly hand

For evidence of how UK-EU relations have warmed up, look no further than Ireland. When Taoiseach Micheál Martin hosts Prime Minister Sir Keir Starmer in Cork today and tomorrow, expect plenty of smiles — but also a timely deal on defence co-operation, writes Jude Webber.

Context: Ireland, which is staunchly neutral, has only four ships that can protect the vital cable infrastructure criss-crossing its waters. It relies on the UK to intercept aircraft posing a threat and, as the FT has revealed, it lacks intelligence systems to receive classified information. 

During the two-day summit, the leaders are expected to update a 2015 memorandum of understanding on defence, boosting co-operation especially on protecting subsea cables.

There are also fears of drone incursions, particularly as Ireland takes over the six-month EU presidency on July 1.

The Irish government has recently unveiled its first maritime security strategy and admits it may need to call on France to help protect its waters during the EU presidency. It also says it will work more closely with the UK and other Nato countries in the Joint Expeditionary Force.

Ireland’s weak defences are more than just a domestic problem. The undersea cables are vital for Europe, too.

Friendly countries have long been exasperated by Ireland’s vulnerabilities, particularly as it is awash with money and spends a minuscule amount on defence. Closer co-operation with its closest neighbour is a welcome start.

What to watch today

1. German Chancellor Friedrich Merz travels to Norway.

2. Ukrainian President Volodymyr Zelenskyy visits Romania, meets President Nicușor Dan.

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