Rounding Up Odds and Ends From Global Energy Developments

The war in Iran continues dominating headlines and investors’ attention, with news coming so fast and furious it may feel impossible to keep up. Attention centers on the biggest news, including attacks on tankers in the Strait of Hormuz, the coordinated release of strategic petroleum reserves and rumors of planned Iranian drone strikes on the US homeland. Meanwhile, several interesting, economic-related nuggets are flying under the radar. Here is a quick survey of the latest—and their market significance.

The EU Mulls Price Caps. Again.

When European energy prices spiked after Russia invaded Ukraine—disrupting Continental natural gas flows—EU leaders bowed to public pressure and enacted an emergency price cap. If regional gas prices jumped over €180 and exceeded a global reference price by €35 for three working days, transactions priced above that amount would have been banned. The EU adopted this after prices’ massive 2022 spike, and the cap never triggered. But the poor policy precedent was set.

That cap expired in 2025. But now, European Commission President Ursula von der Leyen has proposed resurrecting it, with discussions pending next week. This seems odd to us, considering the Dutch TTF benchmark closed Wednesday at €56.82, down a bit from Monday’s year-to-date high of €65.45.^[i] Compare that with August 2022, when prices peaked at €350.48 as the energy crunch panic hit its peak.^[ii] They fell from there as the EU adjusted its suppliers, built out import infrastructure and boosted energy efficiency. Germany had some problems since natural gas is an important feedstock for its mighty chemical industry, but there was no regional supply shock or EU-wide recession.

If much higher prices in 2022 lacked broad economic fallout, emergency intervention seems unnecessary now. To us, this looks more like a political move than an economic one, which bears watching. Another symbolic cap that makes it look like politicians are “doing something” about energy prices. If it never gets triggered, it likely wouldn’t prompt big downstream consequences. But one with teeth could cause distortions and spook markets, which are very familiar with price caps’ fecklessness and deleterious side effects. These things tend to get priced quickly, and we doubt it would outweigh the EU’s many positive fundamentals, but volatility wouldn’t surprise.

The UK Mulls a Tax Holiday. Again.

On the more beneficial side of the ledger, UK Chancellor of the Exchequer Rachel Reeves told a Parliamentary committee “nothing is off the table” when asked if she had plans to shelve a forthcoming fuel tax hike. While she stressed an emergency relief package isn’t in the immediate offing, she confirmed the government is considering ways to assist households with higher motor fuel and home heating costs.

With these things wait and see is always the best approach, as well-intended plans can create winners and losers. The UK’s energy price cap (brainchild of a former Labour leader, enacted by a former Conservative prime minister, extended by the current Labour government) is a prime example. Since it initially reset biannually according to market prices, it forced huge stairstep increases on households when prices ran up in 2022 … and kept household prices high long after market prices eased. If the government were to enact a similar policy for home-heating fuel, which rural homes rely on, it could have similar drawbacks. We aren’t suggesting this is in the offing, just exploring a possible scenario.

However, extending the fuel tax holiday wouldn’t be bad. That cut (5 pence per liter) was part of 2022’s energy assistance package and is set to sunset in September. This is one of voters’ many cost-of living gripes, and while it may be small beans relative to a typical household budget, easing a tiny pain point can still help sentiment a smidge.   

India Battles Gas Hoarding

So far, in much of the world, talk of energy shortages is just that. But talk itself can cause disruptions. Exhibit A: India, where the government is trying to tackle hoarding and black-market selling of liquefied petroleum gas (LPG), the country’s main cooking fuel. While officials have stressed national supply is fine, fear runs rampant, as India imports much of its supply from the Middle East. As you would expect, fear has prompted hoarding. But as also tends to happen in heavily subsidized markets, Indian officials report a wave of illegal stockpiling and black-market activity that threatened to divert supply away from households.

To compensate, domestic LPG production is up 25%, and officials are prioritizing household deliveries. While this benefits households, the hospitality industry is crying foul and warning of closures. The government is forming a committee to respond, so stay tuned. But in the meantime, this is a good reminder that shortages aren’t presently a broad, global issue. And even where they are happening in big economies like India, they seem to result from extant market distortions. That isn’t a blueprint for most of the developed world.

South Korea Takes Action

Elsewhere in Asia, it is hard to disentangle panic from actual shortages. Take Korea, where shortage fears are off the charts, leading to a nearly -20% stock market drop in just three days last week (it has since recovered partially).^[iii] There are 1970s-style gas lines as people race to fill the tank before supply (allegedly) dries up and prices soar, along with talk of hoarding.

In response, South Korean President Lee Jae-myung announced a gasoline and diesel price cap and ordered a clampdown on hoarding, collusion and price gouging. In our view, the potential benefits are unclear. The goal seems to be to give consumers price certainty so that the gas lines will ease. But history shows capped prices tend to raise demand artificially, exacerbating shortages and ultimately driving prices even higher. Refiners also warn that without compensatory subsidies, they will be forced to operate at a loss, creating further problems.

As with the EU’s mooted natural gas price caps, we don’t think this single change is bearish. Korea has plenty going for it. But it is a good reminder that sometimes efforts to “fix” a perceived problem can make things worse, which investors benefit from weighing.

Rationing Elsewhere in Asia

Elsewhere in the region, governments are resorting to rationing—not because shortages are here, but to keep feared shortages at bay. The Philippines announced domestic oil reserves cover about 50 – 60 days of supply (presuming zero imports, which isn’t happening), prompting the government to adopt measures to stretch supply just in case imports are disrupted longer than that. Mostly, this means rationing, with measures including a four-day workweek. Meanwhile, Bangladesh is rationing gasoline and closing universities to conserve electricity and reduce road traffic.

All of these disruptions are harsh and make life hard for the affected people and businesses. Economically, we think they are negative. But these countries are a tiny sliver of global GDP. Cold-hearted markets understand most of the world should make it through without such drastic measures.