Gaps in EU's Preparation for Potential Gas Crises

Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke
Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke
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Gaps in EU's Preparation for Potential Gas Crises

Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke
Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke

The European Union is insufficiently prepared to weather a future gas crisis despite introducing a raft of measures to end its dependence on Russian energy, the European Court of Auditors said on Monday.

Europe's energy supply was upended in 2022 when former top gas supplier Russia invaded Ukraine and slashed fuel deliveries, prompting the EU to introduce emergency policies to fill gas storage, reduce gas use, and jointly buy gas, Reuters reported.

Europe managed to avoid a major gas shortage during the crisis, but it is unclear how much of that can be credited to EU policies versus other factors like mild winter weather and high prices causing industries to use less gas, the ECA said in a report on Monday.

Coordination between Brussels and EU countries helped to forge new gas supply routes to avoid shortages, and the EU's obligation for countries to fill gas storage 90% ahead of winter created market certainty, the report said.

But the auditors said these actions did not sufficiently address the affordability of gas, the price of which surged to above 300 euros ($322) per megawatt hour in August 2022 from around 50 euros per MWh a year prior.

"The Commission knew already in 2014 that a cut-off of Russian gas would have a huge impact on prices, but never modelled its effects on consumers or industry," said Joao Leao, who led the audit.

The auditors flagged other gaps in Europe's preparations for supply crises, noting that six EU countries have kept the option to cut off gas deliveries to their neighbours in an emergency.

They declined to comment on how the scheduled expiry this year of a deal on the transit of Russian gas to Europe via Ukraine would affect Europe's energy security. But they noted the EU's overall reliance on Russia has dropped from 45% of total gas supplies in 2021 to around 15% last year.

Europe's gas demand is expected to decrease as countries reduce fossil fuel consumption to meet climate goals. The auditors said the EU is far behind on its plans to build carbon capture infrastructure to capture the emissions from continued gas combustion.



IMF: Middle East Conflict Escalation Could Have Significant Economic Consequences

Displaced families, mainly from Syria, gather at Beirut's central Martyrs' Square, where they spent the night fleeing the overnight Israeli strikes in Beirut, Lebanon September 28, 2024. REUTERS/Louisa Gouliamaki
Displaced families, mainly from Syria, gather at Beirut's central Martyrs' Square, where they spent the night fleeing the overnight Israeli strikes in Beirut, Lebanon September 28, 2024. REUTERS/Louisa Gouliamaki
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IMF: Middle East Conflict Escalation Could Have Significant Economic Consequences

Displaced families, mainly from Syria, gather at Beirut's central Martyrs' Square, where they spent the night fleeing the overnight Israeli strikes in Beirut, Lebanon September 28, 2024. REUTERS/Louisa Gouliamaki
Displaced families, mainly from Syria, gather at Beirut's central Martyrs' Square, where they spent the night fleeing the overnight Israeli strikes in Beirut, Lebanon September 28, 2024. REUTERS/Louisa Gouliamaki

The International Monetary Fund said on Thursday that an escalation of the conflict in the Middle East could have significant economic ramifications for the region and the global economy, but commodity prices remain below the highs of the past year.

IMF spokesperson Julie Kozack told a regular news briefing that the Fund is closely monitoring the situation in southern Lebanon with "grave concern" and offered condolences for the loss of life.

"The potential for further escalation of the conflict heightens risks and uncertainty and could have significant economic ramifications for the region and beyond," Kozack said.

According to Reuters, she said it was too early to predict specific impacts on the global economy, but noted that economies in the region have already suffered greatly, especially in Gaza, where the civilian population "faces dire socioeconomic conditions, a humanitarian crisis and insufficient aid deliveries.

The IMF estimates that Gaza's GDP declined 86% in the first half of 2024, Kozack said, while the West Bank's first-half GDP likely declined 25%, with prospects of a further deterioration.

Israel's GDP contracted by about 20% in the fourth quarter of 2023 after the conflict began, and the country has seen only a partial recovery in the first half of 2024, she added.
The IMF will update its economic projections for all countries and the global economy later in October when the global lender and World Bank hold their fall meetings in Washington.
"In Lebanon, the recent intensification of the conflict is exacerbating the country's already fragile macroeconomic and social situation," Kozack said, referring to Israel's airstrikes on Hezbollah in Lebanon.
"The conflict has inflicted a heavy human toll on the country, and it has damaged physical infrastructure."
The main channels for the conflict to impact the global economy have been through higher commodity prices, including oil and grains, as well as increased shipping costs, as vessels avoid potential missile attacks by Yemen's Houthis on vessels in the Red Sea, Kozack said. But commodity prices are currently lower than their peaks in the past year.
"I just emphasize once again that we're closely monitoring the situation, and this is a situation of great concern and very high uncertainty," she added.
Lebanon in 2022 reached a staff-level agreement with the IMF on a potential loan program, but there has been insufficient progress on required reforms, Kozack said.
"We are prepared to engage with Lebanon on a possible financing program when the situation is appropriate to do so, but it would necessitate that the actions can be taken and decisive policy measures can be taken," Kozack added. "We are currently supporting Lebanon through capacity development assistance and other areas where possible."