Despite Russia's winter challenge, Europe hasn't snapped yet

The question is whether policymakers, fighting battles on various fronts including Ukraine, will prevail

German Chancellor Olaf Scholz and his cabinet colleagues inaugurate the Hoegh Esperanza LNG floating storage regasification unit in Wilhelmshaven on Saturday. Bloomberg
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Ten months on and the Ukraine war is distorting life in Europe in new ways every week.

At one end of the continent, the sight of tankers queuing at the Bosphorus demonstrated that the Black Sea oil trade has been disrupted. At the other end, the French are asking the British to reduce the draw of electricity through the sub-sea interconnector so that both sides can manage peak daily demand in a cold snap.

If Russian President Vladimir Putin is gambling that the European public will turn against their politicians’ united front on Ukraine, then the sub-zero temperatures represent his best chance to achieve that goal.

Mr Putin is starving the Europeans of natural gas flows. That has pushed up energy prices. The policy response to this is partly trying to save on demand, but when houses are cold there is only so much that can be saved.

The British and the Germans are leading the way on spending Covid-19-levels of intervention to cap the amount that households and businesses are paying for their winter supplies.

One of the divisions in Europe is that the EU bloc cannot agree over whether to use its pricing power to cap the amount that is paid for the gas in the first place. The European Commission's proposal on forcing producers to keep below a limit has met opposition from Germany. After securing supply deals, Berlin does not want its manoeuvre limited and is, thus, reluctant to let Brussels set the terms for the market.

The Kremlin, meanwhile, could tighten the overall energy situation yet further by retaliating against the G7 decision to impose a cap on its oil exports via the maritime insurance market. That was the reason for the tanker pile-up in Turkey.

The speed of change triggered by the Ukraine conflict is ticking up

Turkish President Recep Tayyip Erdogan wanted to be seen as even-handed in his implementation of compliance with the oil cap by ordering that all oil vessels be subject to checks in passing through the straits. This gummed up exports from countries such as Kazakhstan and Azerbaijan, which are not targeted by the measure.

If Russia decides to redirect its oil to Asia, it will have to procure a shadow fleet of tankers to carry its discounted output. That will not be easy, but you would not rule it out if 2023 is to keep pace with 2022’s record of bad news.

In small ways and big, the speed of change triggered by the conflict is ticking up. Take the recommendation put forward by the UK Parliament’s climate change committee that the government should mandate new domestic boilers to be hydrogen-ready from 2025.

Homes in the UK need to adapt faster, for reasons related to how fuel is sourced and the overarching climate change challenge under its net-zero emissions commitments. This is a huge undertaking. A report out on Monday from another UK parliamentary committee said the country needs to change the way it obtains, uses and stores energy.

“Hydrogen will have its place in this portfolio,” the report says. “But we do not believe that it will be the panacea to our problems that might sometimes be inferred from the hopes placed on it.

“Essential questions remain to be answered as to how in future large quantities of hydrogen can be produced, distributed, and used in ways that are compatible with Net Zero and cost efficiency. In the words of one of the witnesses to our inquiry, hydrogen is likely to be a 'big niche' where it will play a major role in certain sectors of the economy, and be a 'huge growth story' over the next 30 years.”

Greek-flagged crude oil tanker Delta Hellas sails in the Bosphorus, on its way to the Mediterranean Sea, in Istanbul last week. Reuters

Also in the UK, the Homes for Ukraine scheme is running into testing times. More than 2,000 Ukrainians are registered homeless as about 50,000 Ukrainians reach the six-month limit for support. A survey of the hosts found still remarkable levels of generosity in straitened times. Overall, three quarters of respondents to the Office of National Statistics said the cost of living was affecting their ability to provide support on the scheme – 18 per cent said “very much”, 29 per cent said “somewhat” and 30 per cent “a little”.

Two thirds said the most common difficulty was uncertainty about what will happen to guests after hosting ends, while seven in 10 have said they have discussed with their guests what will happen after the current hosting arrangement ends, with one quarter having agreed to a plan.

Europe had one shot in the arm late on Thursday, when it got backing from EU members for the €18 billion ($19 billion) package that the bloc is planning to give in budgetary and military support to Ukraine. The package was being vetoed by Hungary, which is still a Russian energy consumer, and then Poland raised objections.

The stand-off drew in the EU’s commitment to a global minimum corporation tax level, something that would have been much swifter to implement without the frustrations over the economic downturn.

These are political wrangles and issues that must be overcome. Despite the widespread hardship, and with Ukraine being an ever-present part of the European news cycle, there is little sign that the continent is changing its mind on support for its neighbour.

Published: December 19, 2022, 4:00 AM
Updated: December 27, 2022, 9:12 AM