You can force people to act against their principles for a while, but they will remember it.
A European Union climate law designed to tackle a potent greenhouse gas has drawn the ire of the Trump administration, potentially threatening billions of dollars of trade and the region’s energy security.
The bloc is targeting leaks of methane, the primary component of natural gas and a common byproduct of oil and coal production. Methane traps 80 times more heat over its first two decades in the atmosphere than carbon dioxide.
Starting Jan. 1, European companies will need to show that fossil-fuel imports have been subject to monitoring and reporting standards equivalent to those within the bloc.
That represents an unacceptable intrusion into how US producers operate, according to the White House, which has championed an American energy dominance agenda that’s rooted in extracting and selling more of the nation’s natural resources.
Along with fellow energy exporters Qatar, Algeria and Nigeria, the US is demanding a rethink before the new obligations kick in. Energy Secretary Chris Wright told Bloomberg last week that the law as currently written would end up inflicting “serious pain” on the EU.
If it goes ahead, “our energy will flow,” Wright said. “It’ll just flow somewhere else.”
That’s no small threat. The EU is moving toward a complete ban on Russian gas and is already reliant on the US for almost two-thirds of its imports of liquefied natural gas. The bloc has committed to buy $750 billion of American energy as part of a trade deal with President Donald Trump.
While there’s little evidence so far that anyone is holding back from signing new supply contracts for US LNG, energy companies including Exxon Mobil Corp. and Uniper SE have also raised the alarm on the issue.
Politicians across the 27-member EU are sensitive to any suggestion that its fragile energy supply chain — already disrupted by Russia’s invasion of Ukraine and the Iran war — could be further jeopardized. Industrial powerhouse Germany has called for changesto the regulation, a move backed by 12 other member states.
Ron Bousso for Reuters:
While oil and gas are once again flowing through the Strait of Hormuz, opens new tab, the closure of the vital waterway for over 100 days could prove to be a turning point in global energy markets. The Arab oil embargo of 1973, a similarly disruptive supply shock, offers clues about where we might be headed.
The latest Middle East crisis tested the limits of the modern energy system, which has evolved over recent decades into a highly interconnected global market held together by thousands of tankers, trading houses and complex pricing systems.
This system proved remarkably adaptable during the U.S.-Israeli war with Iran that began on February 28. Rapid shifts in supply flows and demand patterns mitigated the impact of what had previously been considered a “doomsday” scenario: the effective closure of the Strait of Hormuz, the narrow waterway through which nearly a fifth of the world’s oil and liquefied natural gas supplies typically pass.
Yet this shock was far from painless, particularly in Asia, which depends on the Middle East for 60% of its oil and gas imports. The market adaptations during the crisis – including the rundown of energy stockpilesand China’s reduced imports – were not sustainable.
Global energy markets were buying time. They could have reached a tipping point if the strait had not reopened when it did, as global inventories were nearing dangerously low levels.
That calamity was averted, but the Hormuz crisis has pushed nations to rethink their energy strategies.
Does that mean we should expect a dramatic reduction in fossil fuel use?
Comparing today’s crisis to the Arab oil embargo suggests that the path forward will be more complicated than that, but the crisis could ultimately mark the beginning of the end of the oil era.
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After Russia’s invasion of Ukraine in 2022, Europe was forced to rapidly replace sanctioned energy supplies, sending gas prices soaring and triggering a painful contraction in consumption as countries introduced energy-saving measures. Energy-intensive industries, including chemicals, glass and steel, also shrivelled, as fuel costs made them uncompetitive globally.
European gas demand dropped by over 20% between 2021 and 2023 and has only recovered modestly since then, while renewables have become a bigger part of the continent’s energy mix. The latest shock looks set to accelerate this trend.
FOLLOW THE MONEY
Capital is already following these new energy priorities globally.
Despite the destabilising effect of the Middle East conflict, global energy investment is expected to reach $3.4 trillion this year, up 5% from 2025, according to the IEA’s World Energy Investment report.
Much of that spending is flowing into alternatives to oil and gas and system resilience. That suggests the move away from oil is gaining traction, if only at the margins.
Despite the proxy-war in Ukraine, some political parties are suggesting their respective countries return to purchasing cheap fossil-fuels from Russia (this could be made worse by the daily flip-flops in the Strait of Hormuz). Any hardball politics by the Trump administration will only drive Europeans into the open arms of Russia.