The European Union has announced emergency measures to subsidise up to 70% of the additional costs of fuel and fertilisers for farmers, fishing businesses, and road hauliers, stemming from the ongoing war in Iran. Individual companies can claim up to €50,000 each between now and the end of the year with minimal paperwork, a move the EU hopes will alleviate what it sees as an existential threat to these sectors.
Energy-Intensive Industries Also Eligible
Energy-intensive industries, including steel, chemicals, and rail firms, will be able to claim up to 70% of the extra electricity costs for eligible consumption. Announcing the measures on Wednesday, European Commission Vice-President Teresa Ribera stated they could be the difference between “survival or giving up” for many businesses. She reassured citizens that national governments and European institutions are monitoring the situation and ready to react when needed.
Impact of the Iran War
Oil and gas prices surged during the US-Israeli war against Iran that began in February, with fertiliser prices shooting up by 61% in March alone after supplies of urea and fuel were choked off by the blockage of the Strait of Hormuz. The French fossil fuel multinational TotalEnergies reported a 51% rise in net profit in the first quarter of the year to $5.8 billion, drawing criticism from politicians, climate groups, and consumer organisations.
TotalEnergies Under Fire
French Prime Minister Sébastien Lecornu said TotalEnergies must find a way to redistribute the huge profits it has made on the back of the Iran war oil crisis. “TotalEnergies must, one way or another, take a stance on how to distribute, and potentially in the most effective and rapid way possible,” he said. Antoine Bouhey, campaign coordinator at Reclaim Finance, commented: “TotalEnergies’ war profits highlight our persistent dependence on fossil fuels, whose soaring prices once again benefit shareholders at the expense of consumers.” Greenpeace France denounced what it called “cynical logic” while “households pay the high price at the pump”.
Scope of the Subsidies
The EU stated that the loosening of state aid rules is an emergency measure aimed at helping those in agriculture, fisheries (including aquaculture), and transport – covering road, rail, and inland waterways, plus intra-EU short sea shipping. No relief has been offered to airlines and airports regarding jet fuel, but potential future intervention has not been ruled out. Individual member states can configure the state aid they offer businesses according to local conditions, but small hauliers, farmers, and fishers will be able to claim the fixed amount of up to €50,000 with minimal fuss. For example, they will not need to provide receipts for fuel at petrol pumps.
Risk of Fraud
Although the scheme raises the risk of fraud, the EU believes the problems facing small- and medium-sized businesses after the sharp rise in costs since the war on Iran necessitate a light-touch approach. The European Commission said the Middle East Crisis Temporary State Aid Framework (METSAF) would be a “targeted and temporary framework to address the crisis in some of the most exposed sectors in the economy”. It will be in place until 31 December, underlining assessments made in Brussels that even if the US and Iran struck a peace deal today, oil and gas prices would remain high for many months.
Long-Term Outlook
Last week, Energy Commissioner Dan Jørgensen said the crisis could last up to two years, the time it would take Qatar, for example, to rebuild bombed gas plants. Some concerns have been raised that the subsidies in the form of grant aid could increase demand for fossil fuels and compromise the EU’s target to transition to renewables. Ribera defended the move, pointing out that the measure is short-term. “Achieving a clean economy is what will shield us from the energy crises of the future. The energy transition remains the most effective strategy for Europe’s autonomy, growth and resilience,” she said. “Nevertheless, the recent spikes in energy prices require an immediate response. The METSAF allows for easily applicable solutions that will sustain the continuous development of core EU sectors such as agriculture, fishery and transport, by cushioning the effects of the crisis.”
