$28 billion and counting: Europe tallies the cost of another energy crisis

By Hanna Ziady, CNN

London (CNN) — The European Union has unveiled a raft of planned emergency measures to cushion its economy from soaring energy costs.

The proposals, announced Wednesday, underscore the economic damage the Iran war is inflicting on Europe, which only recently emerged from the energy crunch precipitated by Russia’s 2022 invasion of Ukraine. Some industries are already fighting for survival.

“For the second time in less than five years, Europeans are paying the price of Europe’s dependency on imported fossil fuels,” the European Commission, the EU’s executive arm, said in a statement detailing the measures.

The bloc has spent an additional €24 billion ($28 billion) on energy imports since the start of the war due to higher prices – or more than $587 million a day – “without receiving a single extra molecule of energy,” it added.

The plans include the establishment of a pan-European body to swiftly identify potential shortages of jet fuel and diesel, and to coordinate sharing of fuel or any emergency stockpile releases by EU member states.

The International Energy Agency and airports industry group ACI Europe have both warned that Europe, which imports around 70% of its jet fuel supply, could see shortages of the fuel in the coming weeks.

EU member states should also “urgently suspend” aviation taxes, “so as to cushion price impacts,” Olivier Jankovec, director general of ACI Europe, said in response to the European Commission’s proposals, which also include income support, energy vouchers and cuts to electricity taxes.

The industry group warned earlier that reduced air travel would “significantly harm the European economy,” particularly countries that rely on tourism.

Europe confronts energy crunch

The plunge in oil and natural gas supply caused by the Iran war, which has already hit Asia hard, is steadily moving west. Even if potential peace talks bring an end to the conflict this week, at least some of the damage to Europe’s economy has already been done.

“Even if hostilities ceased immediately, disruptions to energy supplies from the Gulf will persist for the foreseeable future,” the European Commission said.

The list of pain points for households and businesses grows weekly, ranging from higher gasoline and food prices to fewer and more expensive flights.

Germany’s Lufthansa Group said Tuesday that it would cut 20,000 flights from its schedule through October to save on jet fuel, “the price of which has doubled since the outbreak of the Iran conflict.”

For some businesses, the impact of the energy crunch has been particularly severe. For example, a number of European fishermen have stopped fishing because profits have been hit so hard by the rise in energy and raw material costs, according to the bloc’s executive.

Last week, the European Commission triggered a “crisis mechanism” to allow EU member states to provide direct financial support to fishers and fishmongers. “The people who bring seafood to our tables deserve our full support when a crisis beyond their control threatens their livelihoods,” said Costas Kadis, in charge of the EU’s fisheries and aquaculture sector.

Businesses and households could also be hit by soaring prices for plastics and detergents. Germany’s BASF, one of the world’s largest chemicals makers, has hiked prices for everything from formic acid, used in animal feed, to homecare products – in some cases by more than 30%.

The German Chemical Industry Association told CNN this week that the Iran war had dealt a “significant blow” to hopes for an improvement this year in the economic fortunes of Europe’s biggest economy, Germany.

The German and broader European chemical industries will continue to see a shortage of orders, and plants will still be unable to operate profitably, it said. “As a result, further production shutdowns and job cuts are to be expected.”

Europe will likely fall into recession if the Iran war persists through the first half of this year and “disruptions to energy supplies are more extensive,” predicted Neil Shearing, chief economist at consultancy Capital Economics.

So far, the International Monetary Fund has already downgraded its forecast for this year’s economic growth in the 21 countries that use the euro. In updated estimates last week, it also made a sharp downward revision for growth in the United Kingdom.

UK economy feels the pinch

UK inflation rose last month for the first time since December on the back of a jump in fuel prices, official data showed Wednesday. Food prices and air fares also rose at a faster clip in March.

UK fuel retailers said surging pump prices have led to an increase in fuel theft at gas stations, including by first-time offenders, reflecting increased financial pressure on households.

“This is just the first wave of the energy shock, primarily showing up in higher prices at the pump,” said Adam Deasy, an economist at PwC United Kingdom. “We are yet to see the knock-on impact of price pressures in… byproducts to oil and gas, such as fertilizer, helium, plastics or metals.”

Vital materials could also soon be in short supply. Last month, the UK government temporarily restarted a mothballed bioethanol plant to shore up supplies of carbon dioxide, which is critical to healthcare and the production of some foodstuffs. A spike in natural gas prices caused by the war has disrupted EU fertilizer production, making imports of CO2, a byproduct of that process, less readily available.

The rise in natural gas prices has also raised the price of electricity in the United Kingdom, where the costs are linked. On Wednesday, UK Energy Secretary Ed Miliband set out various measures, including extending rooftop solar installations at schools and building more renewable energy projects on public land, to “help cut bills for families and deliver more clean, homegrown power.”

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