EU leaders had a heavy agenda at a summit in Brussels on March 19. They had to deal with a mushrooming energy crisis, a Ukraine funding fiasco and the stalled passage of twentieth sanctions on Russia. Little progress was made on solving any of these issues.

Energy crisis redux

Leaders from across the EU are grappling with a rapidly expanding gas crisis that was already underway before the start of Operation Epic Fury, but now is ballooning thanks to the halt in LNG exports by Qatar.

The Israeli missile strike on Iran’s South Pars gas complex on March 18 is a gamechanger, as it transforms the crisis from the mere disruption of hydrocarbon flows into the destruction of production facilities and locks in many of the worst case scenarios. Oil prices immediately jumped 10% to $113 per barrel, up from around $65 pre-war, and gas prices on the Title Transfer Facility (TTF) Virtual Trading Point in the Netherlands hit €70MWh, up from around €35MWh before the conflict started.

"We are very worried about the energy crisis," said Belgian Prime Minister Bart De Wever ahead of the European Council summit of 27 leaders of EU nations. He said that energy prices were too high before the war, but that the conflict "created another spike."

"If that becomes structural, we're in deep trouble," he added.

That will cause problems in Europe which finished the heating season with tanks a record low of 30% full. According to IntelliNews Lambda calculations, if refilling the tanks ahead of this year’s heating season follows norms then the tanks will only be 75% by the November 1 deadline when EU rules call for tanks to be 90% full.

The low starting point was already going to drive prices up but with the disappearance of Qatari LNG, Europe now finds itself in direct competition with Asia for the limited US LNG supplies, and prices are expected to sky-rocket from already elevated levels. Qatar evaluated the damage caused by the Israeli strikes on the next day as “very serious” and has cancelled all its contracts, declaring a fresh force majeure.

Stalled sanctions package

The consequences are already making themselves felt. The EU has frozen the twentieth sanctions package that would have put even stricter restrictions on Russian oil and gas exports. Reportedly MEPs are nervous about the impulse introducing the new sanctions would give energy prices.

The US has issued a 30-day waiver to allow India to buy more Russian oil. And on March 19 the US Treasury Department also eased sanctions on Iranian oil exports in order to reduce the pressure on prices. The EU has already rejected the US’ initiative to soften sanctions on Russian oil, despite the rise of energy prices.

The twentieth package was supposed to have been symbolically adopted on February 24, the fourth anniversary of the start of the Ukraine war, but embarrassingly, the motion failed highlighting the increasingly fractured stance amongst members towards Russia.

Indeed, the main obstacle to passing the passage was not Hungary’s veto, but vetoes by Greece and Malta, both of which object to the blanket ban on trading Russian oil. Both countries have large tanker fleets, and both countries have been making large profits from servicing Russian oil companies. Up to a fifth of the so-called shadow fleet is actually made up by EU-flagged oil tankers, and up to half of the shadow tankers now owned by Russia were sold to it by Greek shipping companies, retiring their oldest vessels.

Reportedly, the ban on tankers has been dropped from the latest draft.

Funding Ukraine

The EU reaffirmed its plan to provide Ukraine with the €90bn EU loan agreed in December after a push to seize Russia’s frozen $300bn of reserves for a Reparation Loan failed.

The loan would be enough to fund Ukraine for another two years, but the loan has been stymied by Budapest and Bratislava, thanks to the Druzhba row. Hungarian Prime Minister Viktor Orban has vetoed both the twentieth sanctions package and the release of the €90bn loan unless Ukraine speeds up the repair of the Druzhba oil pipeline that supplies Hungary after it was damaged in a drone attack in January.

EU leaders voiced “very, very harsh” criticism of  Orbán during the European Council, Sweden’s prime minister told Politico. “I have never heard such harsh criticism at an EU summit,” Ulf Kristersson said. “He got that message from almost all the leaders at the meeting… This simply cannot go on like this.” Discussions about changing EU rules to move toward qualified majority on key questions “will come up again,” he added.

The funding of Ukraine has turned into a fiasco. Having retreated from the first plan to confiscate Russia’s money – free money for the EU – the executive retreated to the less popular idea of issuing EU-level collective debt, backed by the EU budget. But as that could fail thanks to the veto, it has retreated again to the even less popular idea of issuing €30bn of bilateral debt suggested by the Nordic countries. Those loans are secured by national budgets – tax payers money – and do not need a unanimous EU vote. If it happens it would starve off Ukraine’s macroeconomic collapse, but only fund Ukraine until September, say economists.

At the same time, Ukraine’s EU accession bid is not going well. Ukraine releases a report on the implementation of the EU Association Agreement, showing 84% readiness. However, the six “cluster” negotiations have not been opened yet and the EU earlier this month ruled out fast-tracking Ukraine’s accelerated membership into the trade club by 2027, suggested by Trump as part of the 27-point peace plan (27PPP) trashed out at the Moscow meeting on December 3 between Russian President Vladimir Putin and the US envoys.

Without US financial support or a US security deal, accelerated EU membership is one of the few appealing options available to Ukrainian President Volodymyr Zelenskiy as it would also come with membership of the EU’s own Article 42/7, an Article 5-like European collective security agreement, not to mention access to EU funds and a vastly improved investment ecosystem.

Instead, the European Council pushed for the stopgap need to boost military aid to Ukraine and accelerate the delivery of essential weapons – air defence systems, ammunition, missiles, and drones – and highlighted the importance of developing Ukraine's defence industry.

As pressures grow on Bankova, Zelenskiy is facing a growing domestic political crisis, as his support in his own Servant of the People (SOTP) party is fraying on the back of his growing authoritarian tendencies, a metastasizing corruption scandal, and the growing war-fatigue amongst the population. A recent Kyiv International Institute of Sociology (KIIS) poll found that the majority of respondents would back a peace deal that gave land away to Russia – Putin’s central demand – for the first time, if the concessions were framed positively.

Growing EU disunity

The new crisis is expected to further stoke disunity in the EU, which was already fragmenting as more voices, including that of De Wever, are calling for a rapprochement with Russia and resuming imports of gas, oil and other key commodities.

European leaders have struggled to take a unified stance on the fighting in Iran and Lebanon. Spain has refused to grant the US permission to use US military bases there to resupply its military in the Middle East. US President Donald Trump called on his Nato allies to send their navies to the Gulf, but at the summit, the EU leaders declared they would not send warships to the region “until after the war is over.” Trump responded by suggesting the US would pull out of Nato.

"This is a war that was started by the United States and Israel against Iran for reasons that I can understand because the Iranian regime is brutal," said Dutch Prime Minister Rob Jetten. "But it´s not a war that we are part of."