On Tuesday, the Council of the EU convened an emergency video conference with energy ministers to coordinate swift action in response to the escalating crises in the Persian Gulf and their immediate impact on energy markets. Last week, I warned of the crucial need to quickly reopen the Strait of Hormuz and highlighted the dangerous vulnerabilities of global markets stemming from increased interconnectedness of decades of globalisation. These developments are no longer gradual shifts – they are critical vulnerabilities demanding urgent attention from all countries involved.
The President of the United States has threatened to withdraw security guarantees to NATO allies if they do not participate in the conflict in Iran and contribute to safeguarding the stability of the Strait of Hormuz. Europe’s security – encompassing both energy and defence – remains heavily dependent on the transatlantic relationship. The President stated that allies must either help maintain the stability of the Strait of Hormuz or purchase energy from the United States, which he claims is abundant in supply. Donald Trump has branded EU allies as “freeloaders”, reiterating his position that the United States should not increase defence spending to protect them unless they support his efforts regarding the Strait of Hormuz. This pressure adds another layer of complexity to Europe’s already fragile energy landscape.
Given the EU’s ongoing conflict with Russia over the war in Ukraine, the sanctions imposed in recent years, and its commitments to Ukraine, the alternative suppliers identified by the European Commission to replace Russian energy have proven problematic due to one route. The crisis in the Persian Gulf further complicates the situation, as even an immediate end to the conflict would leave the region highly unstable. Resolving the war through displays of strength would likely only extend the energy crisis. Commissioner Jorgensen’s recent statements echoed those of Commissioner Kadri Simson in 2022, but also incorporated rhetoric reminiscent of the pandemic era, when citizens were encouraged to work from home, reduce air travel, limit private vehicle use, and adopt renewable energy practices. The European Commission is currently adhering to the International Energy Agency’s (IEA) recommendations, which prioritise remote work to reduce oil demand, particularly diesel. The IEA also identifies jet fuel as a significant concern and thus advocates for reduced air travel to lower demand, ease energy price pressures, and curb emissions.
The IEA has recommended that remote work for at least three days per week can substantially reduce commuting‑related fuel consumption, particularly diesel. Last week, I highlighted on my social media that the energy crises of the 1970s led to a decade of stagflation, drawing on my experience as an economist analysing markets, international trade and geopolitics from my former PSC seat in Brussels. This perspective has provided me with insights into market behaviour, interconnectedness, and the influence of geopolitics. A single event can trigger widespread global economic disruption, as evidenced by the 1970s oil crisis, which caused significant economic hardship despite lower energy intensity in products and services at that time. In contrast, today’s environment is characterised by increased energy demand driven by advances in artificial intelligence, technology adoption, and rising consumerism. This makes the current crisis far more challenging to navigate.
The outlook for Europe is concerning. Historically, Europe has relied on external energy sources. The core issue is that the EU delayed investment in renewable energy for three decades. Now, the geopolitical context has shifted, and the EU has severed ties with Russia, a major supplier of liquefied natural gas and other energy products. In my view, it is imperative for the EU to invest in renewable energy or nuclear energy and pursue energy independence. Without substantial investment in renewables or nuclear energy, this issue will persist.
However, the challenge extends beyond energy security to encompass defence. The EU is currently economically ill‑equipped to address multiple crises simultaneously due to high public debt levels. Additionally, the new Multiannual Financial Framework (MFF) has adopted a different approach to defence investment. Prioritising energy security is essential before increasing defence spending. While concurrent investment in both areas is necessary, NATO and the United States remain irreplaceable in terms of defence capabilities. The United States is the primary provider of defence resources, and without its support, the EU would face significant difficulties. The bill is costly to replace the USA. This reality underscores the strategic imbalance Europe must confront.
Certainly, it is important to recognise that the President of the United States is fully aware that the EU cannot manage these challenges independently. Consequently, the EU requires stronger ties with the United States to maintain and advance its defence and security. Realistically, the EU cannot simultaneously invest heavily in defence and accelerate its transition to renewable energy. The economic situation in the EU is precarious, particularly debt to GDP ratio in major economies such as France and Italy. Surely, any significant economic instability in these countries could trigger a crisis for the euro, the currency used to purchase energy against the US dollar. A weakened euro would increase the cost of energy imports, compounding the effects of the current energy shock with a potential currency shock. This combination would be highly problematic.
Since Israel and the United States initiated attacks on Iran less than a month ago, oil and gas prices have surged by over 70%, as around one‑fifth of the world’s crude oil and liquefied natural gas supply is now obstructed in the Persian Gulf. Russia cannot serve as an alternative supplier, due to the EU’s intentional efforts to lessen reliance on Russian gas – a milestone the EU has publicly celebrated. Reversing this policy is not feasible, particularly given the ongoing need to support Ukraine. Recent informal EU energy discussions have reportedly examined the necessity for state aid and greater investment in renewables or nuclear energy. It now appears that nuclear energy is being considered as the next step in the EU Commission’s strategy to strengthen energy security.
Malta’s political parties should consider the recommendations of the IEA and the EU Commission. Indeed, the Maltese government, along with the public sector should implement a teleworking schedule. Specifically, they should enable remote work and reinstate teleworking at pandemic levels, as I have previously advocated, to reduce CO2 emissions and ease traffic congestion. Nevertheless, policy in Malta is slow to implement, and by the time these measures are enacted, the Persian Gulf crisis may have subsided. Yet the global structural vulnerabilities will remain, and Malta cannot afford to ignore them.
