The wars in the Middle East and Ukraine are prompting European governments to take a package of measures, including financial support, taxes and policy adjustments, in an attempt to protect their economies and companies, and calm growing citizens’ dissatisfaction with the record rise in gasoline and diesel prices.
The Organization for Economic Cooperation and Development said that governments around the world have intervened to limit the economic repercussions resulting from the decline in energy supplies and the rise in fuel prices since the outbreak of the war with Iran. The organization explained in a report published on Wednesday that seven of the ten countries most active in containing economic damage are located within the European Union, according to the Associated Press.
In Lithuania, train ticket prices were halved. Italy postponed the scheduled closure of coal-fired power plants, and eased paperwork requirements for oil and natural gas projects. The Netherlands has also increased funding for a program that provides free services to improve energy efficiency in homes, while Poland has proposed imposing higher taxes on the record profits made by some fuel producers and sellers.
Before the American and Israeli attacks on Iran, the Russian war in Ukraine had disrupted global energy supplies and sparked unrest in Europe. The European Union imports about all of its oil needs and 85 percent of natural gas, while imports in total cover 57 percent of its energy needs, according to the European Union Statistics Office. A large portion of the energy produced locally comes from renewable sources and nuclear energy.
Europeans' dissatisfaction is increasing as fuel prices at filling stations exceed the equivalent of $12 per gallon in some countries. European Union citizens spend an additional 203 million euros ($231.13 million) daily on diesel fuel alone, according to the European Transport and Environment Organization.
Anthony Froggatt, an analyst at the organization, said: “It is a painful irony that the United States is the least exposed to a crisis that it helped create, while the European economy is taking the hit again.”
European governments are spending several billion dollars to help their economies overcome the current energy crisis.
In Brussels, EU leaders gave member states temporary flexibility to provide government aid to households and energy-intensive sectors, such as agriculture, transport and fishing. They also provided a limited margin to bypass European spending rules with the aim of financing investments that enhance energy security and reduce the Union's dependence on oil and natural gas imports in the long term.
“The pressures resulting from rising energy prices and borrowing costs are starting to weigh on individuals and companies,” European Commission President Ursula von der Leyen said in her annual State of the European Union address last week. She added that the Union needs to double its reliance on clean and affordable energy sources that it produces locally, whether renewable, nuclear, biomethane or others, in a way that enhances independence and contributes to reducing energy prices.
France expands subsidies for diesel drivers
France has adopted an increasing range of measures directed at mitigating the impact of rising fuel prices on consumers and energy-intensive businesses.
On Tuesday, the French government announced a package worth 450 million euros ($512.35 million) to expand support measures, which included expanding the scope of income-based assistance to people who travel more than 30 kilometers back and forth to work, or more than 8,000 kilometers annually for professional purposes. The government said the expansion will make 5.5 million workers eligible for €100 payments to help cover fuel costs until the end of the year.
The new package also extended fuel subsidies for farmers, fishermen and construction companies until the end of the year, and decided to make energy vouchers, worth between 48 and 277 euros, available three months early to help 5.8 million families pay their energy bills during the winter.
French President Emmanuel Macron asked von der Leyen to push for relaxing European Union rules related to fuel quality, including density, sulfur content and other standards, with the aim of increasing diesel and kerosene production in Europe. The Federation had taken a similar step during the “Covid-19” pandemic.
In a letter to the European Commission, seen by the Associated Press, Macron warned that the global oil market may witness “strong price increases” soon if the passage of oil tankers through the Strait of Hormuz off the Iranian coast is not resumed. He also called for raising the EU maximum for conventional biodiesel content in diesel fuel from 7 to 10 percent.
Germany and Spain reduce fuel taxes
A two-month round of fuel tax cuts ended in Germany at the end of June. Last week, the government agreed to extend the reduction, which will reduce gasoline and diesel prices by about 17 cents per liter, starting from October 1 until the end of the year. The government said the cost of the new reduction would amount to 2.5 billion euros ($2.85 billion).
The government also announced that it will hold talks with oil companies to discuss imposing a ceiling on fuel prices starting from January 1. Neighboring Belgium and Luxembourg have implemented similar measures for decades.
The Spanish government, in turn, extended the reduction in taxes on gasoline and diesel, which began to be implemented in March, as part of a package worth 5 billion euros to confront the repercussions of the war with Iran on local energy prices.
The tax exemption amounted to 5 cents per liter during the current month, while an automatic mechanism allows it to be raised to 20 cents per liter if inflation in fuel prices exceeds 15 percent on an annual basis. The government also extended fuel subsidies to transport companies, farmers, livestock breeders and fishermen.
The United States becomes a major energy supplier to the European Union
In addition to national support programs, European Union countries have resorted to their strategic reserves, within the framework of an agreement between the 32 member states of the International Energy Agency to make 400 million barrels of oil from their emergency reserves available on the markets.
The European Union is working to reduce its dependence on energy imported from Russia by increasing renewable energy production and converting industrial systems and sectors to operate with electricity instead of fossil fuels.
Von der Leyen said that increased reliance on electricity could reduce the bloc's annual bill for oil and gas imports by about 260 billion euros ($296.03 billion) by 2040.
As the Union sought to reduce its dependence on Russian energy, its dependence on the United States increased. Von der Leyen personally concluded an agreement with US President Donald Trump last year, which included the European Union's commitment to purchase US energy worth $750 billion over three years.
The war with Iran has made this relationship more important and complex for the European Union, which has increasingly turned to the United States to secure diesel supplies. Trump's support this week for the idea of banning diesel exports with the aim of reducing prices within the United States raised European concerns, as in this case the Union would be forced to search for alternative sources of fuel.
Brussels is pressuring Washington to abandon the idea of suspending diesel exports abroad.
“We think this is a bad idea,” European Commission spokesman Olof Gehl said on Thursday. EU-US energy cooperation is strong, stable and mutually beneficial. Any disturbance in this cooperation may negatively affect both sides.”
Hong Kong stocks fell, on Friday, in weak trading due to the holidays, and technology and artificial intelligence companies led the losses, while investors remained awaiting more clarity about the results of the summit between US President Donald Trump and his Chinese counterpart Xi Jinping in Washington.
The standard Hang Seng Index fell 1.7 percent to close at 24,343.19 points, recording the lowest level in two months, while the Hang Seng Chinese Enterprises Index, which tracks the performance of mainland companies listed in the city, lost about 2 percent.
The pressure was most evident in technology stocks; The Hang Seng Technology Index fell by more than 2 percent to its lowest level in three months, while shares in the artificial intelligence sector fell by about 3 percent.
The losses came amid limited trading volumes ahead of the Mid-Autumn Festival holiday in Hong Kong, while financial markets on the Chinese mainland remained closed on Friday, and trading will resume on Monday.
Markets in Taiwan and South Korea were also closed for holidays, while the broader MSCI index of Asia-Pacific stocks outside Japan remained little changed.
Investors' attention has shifted mainly to Xi's visit to the United States and his talks with Trump, in light of the continuing disagreements between the world's two largest economies over trade, technology, artificial intelligence, and other geopolitical issues.
There have been no major breakthroughs in key files so far, which has kept investors cautious about increasing their exposure to Chinese assets. The markets entered the summit with limited expectations about the possibility of reaching broad settlements, especially after years of mutual trade and technological restrictions.
Khun Goh, head of Asia research at ANZ, said that the markets were not expecting a major breakthrough, but the importance lies in setting a “floor” for relations between Washington and Beijing that limits the possibility of them deteriorating further.
He added that relations are moving in the right direction, considering that providing greater stability in the bilateral relationship represents in itself a development that the markets can welcome. Friday's losses are an extension of the state of caution that dominated Chinese assets in the previous session. On Thursday, mainland stocks recorded their largest daily decline in a month. The CSI 300 Index fell by 1.7 percent, while the Shanghai Composite Index lost 1.2 percent. The sharpest decline in technology stocks reflects the sector's particular sensitivity to any developments in US-Chinese relations, given the continued US restrictions on exporting chips and advanced technologies to China, in addition to the escalating competition in the field of artificial intelligence.
At the same time, the holidays contributed to amplifying the state of caution, with low liquidity and the absence of a number of major regional markets from trading, prompting investors to avoid building large positions before the results of the talks in Washington became clear.
Thus, the Hong Kong market ended the week under double pressure from the decline in technology stocks and the lack of clarity on the next path of relations between China and the United States. Although the continuation of the dialogue between Trump and Xi provides a degree of stability, investors are awaiting concrete steps in the files of trade, artificial intelligence, and technology before risk appetite returns stronger to Chinese stocks.
Japanese Finance Minister Satsuki Katayama revealed on Friday that US President Donald Trump raised the issue of the weak yen during his meeting with Japanese Prime Minister Sanae Takaichi, an indication of growing common concern in Tokyo and Washington about the continued decline of the Japanese currency and its repercussions on inflation and bond markets.
Katayama said, during a regular press conference, that Trump expressed during the recent Japanese-American summit his concern about the weakness of the yen, adding that she was revealing the details of this dialogue for the first time after consulting with the Prime Minister’s Office.
She explained that Takaichi informed Trump, “as a general principle,” that the decline in the value of the yen to levels below its fair value represents a problem. Detailed disclosure of the two countries' leaders' discussions on exchange rates is unusual, given that governments usually avoid announcing the details of these talks.
Takaichi met Trump in New York on Tuesday, on the sidelines of the United Nations General Assembly meetings. She later said that the two sides held “timely” discussions on China, ahead of the scheduled summit between Trump and Chinese President Xi Jinping.
According to Katayama, the exchange discussions reaffirmed the common position between the United States and Japan that underpinned the coordinated intervention in the currency market on July 31, including a commitment to confront excessive volatility and disorderly movements in the yen price.
The Finance Minister added that she will continue close communication with US Treasury Secretary Scott Besent on a range of issues, including exchange markets.
The statements came at a time when the dollar continues to achieve gains against the yen and other major currencies, supported by strong US economic data, the tightening of the Federal Reserve and the rise in US Treasury bond yields.
The yen improved slightly after Katayama's statements, rising from about 158.60 yen to the dollar to about 158 yen.
The weak yen poses an increasing challenge to the Japanese economy, because it raises the cost of energy imports, which have already increased due to the US-Israeli war on Iran, which fuels fears that inflation will exceed target levels. Washington is also monitoring developments for fear that the repercussions of the Japanese bond sale will spread to the US Treasury bond market.
Concern about the currency coincided with a continuing sharp rise in Japanese government debt yields. The ten-year bond yield rose on Friday to 3.115 percent, the highest level in about 30 years, affected by a strong selling wave in the American market.
Katayama declined to clarify whether the global rise in bond yields was discussed during Trump and Takaichi's meeting.
In another indication of the change in Japanese economic policy trends, Economic Revitalization Minister Minoru Kiyoshi, an ally of the movement that supports Takaichi’s economic policies, said that the phase of “Abenomics”-style stimulative policies, which relied on monetary easing and flexible fiscal spending, has ended.
His statements came after implicit criticism from Besant, who recently indicated that Japan's priority should be combating inflation rather than stimulating growth, in light of fears that some elements of previous economic policies will continue within the current government's directions.
Hirofumi Suzuki, chief currency strategist at Sumitomo Mitsui Banking, said that Katayama and Kiyoshi's statements reflect escalating official concern about the weakness of the yen, especially after the Japanese authorities conducted checks on exchange rates in the market on Friday, a step usually seen as a possible indication of readiness to intervene.
These developments place the yen at the heart of Japanese economic policy calculations, as Tokyo faces at the same time inflation pressures, rising bond yields, and tightening monetary policy. Katayama's statements also show that currency movements have become the subject of direct attention at the highest political level in both Japan and the United States.
