The European energy market faces significant challenges as natural gas prices soar to their highest levels in a year. A combination of escalating tensions between Russia and Ukraine, Gazprom’s suspension of natural gas supplies to Austria, and colder-than-expected weather has placed substantial pressure on the market.

Industry representatives acknowledge that while sufficient gas supplies exist, the supply-demand balance remains fragile. Negative developments or geopolitical news could quickly trigger additional price surges.

On Thursday, Dutch TTF futures—a key European natural gas benchmark—rose to €48.8 per megawatt-hour (MWh) (equivalent to $538 per 1,000 cubic meters), a level last observed in November 2023. Since the end of the heating season on 31 March, prices have climbed by more than 150%.

The price surge accelerated on Wednesday after Ukraine targeted Russian territory using British-made Storm Shadow missiles. By the close of the trading day, prices had increased by 2.5%, reaching €46.8/MWh.

On the same day, the United States issued a warning based on intelligence reports, predicting a major air strike in the region. Following this warning, many Western countries evacuated their embassies in Kyiv.

Adding to the tensions, the Ukrainian Air Force reported that Russia test-fired an intercontinental ballistic missile (ICBM) capable of carrying nuclear payloads. This event aligns with speculation about changes in Russia’s nuclear doctrine and the US’s authorization for Ukraine to target Russian territory with long-range missiles.

While liquefied natural gas (LNG) demand in Asia remains low, traders are turning their focus to Europe to capitalize on surging prices, according to Bloomberg.

Despite the increased volatility, Gas Infrastructure Europe reports that gas storage facilities across Europe are 90% full. However, the heating season, combined with freezing temperatures in Northern Europe, has amplified concerns about market stability.

Torgrim Reitan, Equinor’s Chief Financial Officer, emphasized that the market’s fragile balance increases the influence of external factors on pricing dynamics.

The state of pipeline gas supplies from Russia is another major concern. On 16 November, Gazprom halted deliveries to Austria’s OMV, citing unresolved payment issues. The company is attempting to recover part of a €230 million arbitration judgment through this suspension.

Despite this, Gazprom continues to supply 42.4 million cubic meters of gas daily to Europe via Ukraine. However, OMV cannot access these supplies and must turn to other sources, such as Slovakia, to meet Austria’s energy needs. According to OMV officials, Austria’s energy requirements are fully covered by alternative suppliers.

Jon Treacy, editor of the investment newsletter Fuller Treacy Money, noted that although Austria maintains official neutrality, most of OMV’s customers are NATO members. Treacy added that Russia’s “long, cold winter” strategy aims to exert pressure on regions beyond Ukraine over the long term.

Market analysts warn that transit through Ukraine—a minor contributor to the European Union’s total gas imports—could be entirely cut off by January 2024. Such a development would further strain an already delicate market, potentially driving prices even higher.

As Ukraine fires U.S.-made long-range missiles at Russia for the first time and Russian leader Vladimir Putin updates his country’s nuclear doctrine, European countries are preparing for an all-out war on the continent.

According to a 1,000-page document drawn up by the German armed forces called ‘Operationsplan Deutschland’, Germany will host hundreds of thousands of troops from NATO countries and act as a logistics hub to send huge amounts of military equipment, food and medicine to the front line.

The German military is also instructing businesses and civilians on how to protect key infrastructure and mobilize for national defense in the event of Russia expanding drone flights, espionage and sabotage across Europe.

Businesses have been advised to draw up contingency plans detailing the responsibilities of employees in the event of an emergency, and told to stockpile diesel generators or install wind turbines to ensure energy independence.

More state intervention in the economy under discussion

In this context, state intervention in the economy and in companies is being discussed more intensively.

The German state has far-reaching rights in crisis situations. The energy crisis showed how quickly the state can intervene: At the time, the German government filled gas storage facilities by law, nationalized the gas importer Uniper and supplied floating LNG terminals.

According to Bertram Brossardt, CEO of the Bavarian Business Association, even a “transition to a planned economy” could be possible in an emergency.

This ‘planned economy’ could involve the state issuing food vouchers or even forcing people to work in certain sectors, such as water or transport companies.

Companies could also benefit if they have employees who volunteer for disaster relief, the Federal Agency for Technical Relief (THW) or the fire brigade.

Lieutenant Colonel Jörn Plischke, who conducted the company training in Hamburg, said: “It costs you a few days a year to support this. But in a crisis, you have a direct link to the people who protect people and infrastructure,” he said.

Hamburg: The intersection of civil and military economy

Hamburg, where Lieutenant Colonel Plischke attended the event, is a central hub for the transport of goods and troops.

“If our infrastructure is used for military purposes, the risk of cyber-attacks and sabotage increases significantly,” the mayor of the Hanseatic city, Peter Tschentscher, told the Faz newspaper.

The Hamburg Senate has therefore created additional staff to strengthen civil defense. A third ‘home defense corps’ has been introduced, made up of volunteers who do not fight in the troops but work to ensure protection and security.

Exercises are currently being held in the Hanseatic city with the German armed forces and civilian forces.

According to the report, this exercise, called ‘Red Storm Alpha’, is training in the protection of port facilities.

The next exercise, ‘Red Storm Bravo’, will start soon and will be on a larger scale.

The lessons learnt from these exercises will then be incorporated into the ‘Operationsplan Deutschland’. This plan is intended to be a ‘living document’, constantly evolving and adapting to new information and threats.

Under Ursula von der Leyen’s second presidency, the European Commission will abandon its previous ‘cordon sanitaire’ policy towards the ‘far right’.

Leyen’s new Commission will include two members from the ‘far right’. Raffaele Fitto of Fratelli d’Italia (Brothers of Italy – FdI), the party of Italian Prime Minister Giorgia Meloni, and Olivér Várhelyi, who is close to Fidesz, the party of Hungarian Prime Minister Viktor Orbán.

Fratelli d’Italia is part of the European Conservatives and Reformists (ECR) group in the EP, while Fidesz is part of the Patriots for Europe (PfE) group, which also includes the French National Rally (RN) and the Austrian Freedom Party (FPÖ).

The conservative European People’s Party (EPP), led by German CSU politician Manfred Weber, has repeatedly cooperated with the ECR in the past legislature and explicitly reserves the right to do so in the future.

The cordon sanitaire against the right is practically non-existent

More recently, it has voted with the PfE and sometimes even with the Europe of Sovereign Nations (ESN), of which the German AfD is a member. The traditional border against the ‘extreme right’ (the so-called ‘security cordon’) is thus continuing to crumble.

The security cordon was systematically relaxed by the EPP in the last legislative period. As early as January 2022, the EPP made it possible for an MEP from the right-wing ECR to be elected as one of the vice-presidents of the EP.

A study by the Greens shows that the European Commission under Ursula von der Leyen has relied on MEPs from the ECR and even the more right-wing ID (Identity and Democracy) group in around 340 votes to secure a majority.

According to the study, these demands often included a reduction in the CO2 price for the car industry or the approval of subsidies for fossil fuels.

With the votes of the EPP, ECR and ID, the EPP also managed to block a motion in April 2024 proposing measures to prevent parliamentary staff from being harassed by MEPs.

So, one small step after another, the security cordon was broken.

Breaking point: European right united against Maduro

In September, one of the first votes of the newly elected EP attracted more attention. The resolution under discussion would have recognised Edmundo González, the defeated candidate in the presidential elections in Venezuela on 28 July 2024, as the real winner of the elections.

The resolution in favour of González was tabled jointly by the EPP and the ECR, in which the party of Italian Prime Minister Giorgia Meloni is the largest group.

The resolution was finally adopted with the votes of Orbán’s Fidez, Le Pen’s National Rally (RN) and PfE, which includes the FPÖ, and the ESN, which includes the AfD.

The ‘Venezuelan majority’ at work in the EP: EPP support for the AfD

The so-called ‘Venezuelan majority’ – the large voting majority of conservative and right-wing parties in the EP – has since come into play on several occasions.

This was the case in October, for example, when the European Parliament decided on the procedure for presenting and voting on future EU commissioners. Also in October, the EPP voted in favour of an AfD budget motion proposing the erection of extensive barriers at the EU’s external borders.

The EPP, ECR and PfE also voted to award this year’s European Parliament Sakharov Prize to González and right-wing Venezuelan opposition politician María Corina Machado.

Finally, last week the EPP joined with other MEPs on the right to amend a bill aimed at halting global deforestation.

Sparking outrage on the left, several rebel MEPs from the ECR, PfE, ESN and the liberal Renew group backed the EPP on key amendments.

European Commission President Ursula von der Leyen was elected in July on the basis of an alliance between the EPP, Liberals, Socialists and Greens.

In its second term, the European Commission is abandoning its previous ‘cordon sanitaire’ policy against the ‘far right’.

Leyen’s new Commission will include two members from the ‘far right’. Raffaele Fitto of Fratelli d’Italia (Brothers of Italy – FdI), the party of Italian Prime Minister Giorgia Meloni, and Olivér Várhelyi, who is close to Fidesz, the party of Hungarian Prime Minister Viktor Orbán.

Fratelli d’Italia is part of the European Conservatives and Reformists (ECR) group in the EP, while Fidesz is part of the Patriots for Europe (PfE) group, which also includes the French National Rally (RN) and the Austrian Freedom Party (FPÖ).

The conservative European People’s Party (EPP), led by German CSU politician Manfred Weber, has repeatedly cooperated with the ECR in the past legislature and explicitly reserves the right to do so in the future.

New Commissioners from the right

Raffaele Fitto, a member of Giorgia Meloni’s FdI party, is known as one of Meloni’s closest friends and will be appointed by Leyen as one of the vice-presidents of the EU Commission ‘responsible for cohesion and reforms’.

Hungary, on the other hand, has appointed former Enlargement Commissioner Olivér Várhelyi as a commissioner in Brussels, with future responsibility for health. Várhelyi is very close to Prime Minister Orbán’s Fidesz party.

There is strong protest against Fitto and Várhelyi in the Socialist and Green parliamentary groups, which support the Leyen Commission. It is rumoured that both groups will not support the appointment of the two politicians.

The invisible architect of the right-wing alliance: Manfred Weber of the CSU

The row over future commissioners has come to a head in recent days.

EPP President Manfred Weber (CSU), who is seen as the main architect of his group’s alliance with the ECR and the EPP, could theoretically get two right-wing commissioners approved with a “Venezuelan majority”.

However, if CDU or CSU politicians in the EP vote with the AfD on a key decision, this could be seen as an unwelcome signal shortly before the early German elections.

But as former Italian prime ministers Romano Prodi and Mario Monti said on Tuesday, pressure is growing for the EU to act ‘as one’ at a time when it faces ‘major challenges both in the East and in the West’.

We have a responsibility to make sure that something changes after this election… The majority will very often include the ECR,” German EPP MEP Peter Liese of the CSU also told reporters on Monday.

Liese said he had no “firewall” against the ECR and claimed that Fitto’s senior position had been negotiated as part of an agreement between the main political families in the European Council at the beginning of the summer.

Continued support for Ukraine in return for right-wing MEPs

On Wednesday (20 November), however, the leaders of the European Parliament’s political groups, meeting in Brussels, reached an agreement.

According to this, Fitto and Várhelyi will be allowed to take up the positions in the European Commission that Leyen has envisaged for them, and the Socialists will agree to this.

In return, the EPP promises to cooperate only with ‘pro-Ukrainian’ parties that support the EU and the rule of law.

This means that the old ‘cordon sanitaire’, i.e. the border against the ‘extreme right’, has been replaced primarily by foreign policy conditions.

According to the EPP’s interpretation, there are no longer any obstacles to cooperation with the ECR.