As the war triggered by the US and Israel in the Middle East spread to oil and gas infrastructure over the past week, the Government’s response to the resulting price shocks will be a test of the lessons learned over the past five years of constant volatility on energy markets.

As Peter explained on Thursday, the global oil oversupply observed just two months ago has turned into a squeeze, especially for some specific fuel products and destinations. Aviation fuel, for example, is trading at levels of around $200 per barrel in parts of Asia, he pointed out. “This has already affected Asian markets to a much greater degree than European markets, but if the conflict continues in its current form, it is only a matter of time until it does,” Peter added.

Hours later, the authorities in Qatar revealed that an attack on the country’s natural gas installations would result in a 17 per cent cut to production for up to five years. As Europe weaned itself off Russian gas following the invasion of Ukraine, it turned to two major alternative suppliers: the US and Qatar.

For example, a German deal to import up to 2 million tonnes of Qatari liquefied natural gas was due to begin this year – until the war shut down its shipping route through the Strait of Hormuz and depleted the Gulf country’s production capacity.

While Ireland’s gas imports come via pipeline from the North Sea, there is no reason for UK and Scandinavian producers to sell it to Irish buyers at the pre-war price of €30/MWh when German ones are prepared to pay the current price of over €60/MWh.

The spike in oil prices so far this month is comparable to the one observed as a result of the war in Ukraine four years ago. Gas volatility is, thankfully, nowhere near the madness of that period, but the increases in the price of both fuels pack increased shock value from the reversal of trend they present compared to the benign market sentiment at the start of this year, and from the previous years of compounded inflation already weighing on the finances of businesses and households.

The Government has rightly ruled out a pause in the established policy of modest annual carbon-tax increase and taken a few days to consider the measures it will announce to soften the blow at its next cabinet meeting on Tuesday. This announcement will give a measure of official reckoning with the fact that the economy is largely running on fuels whose prices are at the whim of warlord-like behaviour by leaders outside European control for the foreseeable future.

According to Government sources, the package will combine a reduction in excise duties at the pumps, an extension of the fuel allowance past its April end date for this year and a rebate specific to hauliers. They will apply for an initial period of weeks before they are reviewed.

As the Coalition refines the balance between those three elements, leaks and talking points by ministers have shifted from initial suggestions of blanket excise cuts on motor fuels and heating oil to the introduction of the “targeted” keyword – the one economists agree is a basic requirement to make any financial support worth its cost to the taxpayer.

The more targeted the measures, the better chance to fulfil Tánaiste and Minister for Finance Simon Harris’s promise to the Dáil on Wednesday of “an appropriate intervention, for the areas in which there is most acute pressure and challenge”.

The limitation to this fine-tuning resides in his next point – the need “to enable the assistance to be applied quickly”. 

On Thursday, Taoiseach Micheál Martin added: “We will respond. There will be a short-term dimension to it – medium term… Our immediate priority is to try and alleviate pressures on people, on families in particular, and then to make sure that we can do it in a way that doesn’t do any damage to the economy or doesn’t create any secondary effects in terms of inflation.”

He flagged social welfare payments as a way of channelling targeted support.

Previous experience with open-ended untargeted energy rebates following the full invasion of Ukraine has shown how difficult they are to unwind after they inevitably become baked into permanent price expectations. 

A general excise cut on fuels, while it would help those businesses and households most exposed to fuel poverty or insolvency, would also squander vast sums of taxpayer money on recipients who don’t need or deserve it.

The families who can afford the largest houses and cars, and the companies that made the least effort to invest in fuel-efficient vehicles or equipment, will, in euro terms, receive more help from this type of measure. Its share of the upcoming package should be kept to a minimum.

Blanket energy rebates essentially consist of returning with one hand money taken from taxpayers with the other – minus administration costs. The worst example in recent history was billion-euro electricity bill credits handed out to all households, including for their second homes.

It is now only a matter of time before elevated gas prices feed into the electricity market, and the Government’s level of preparedness for this eventuality will be its next test.

At a deeper level, Harris also said: “As long as we rely on imported fossil fuels, events far beyond our shores will continue to impact in a real way on households and businesses. That is not a sustainable position. And it is not a secure one. The only lasting answer is to reduce that dependence.”

As the Tánaiste outlined, the solution to this conundrum is to accelerate the transition to renewable energy and improve efficiency. Blanket subsidies for fossil fuels are not the way to achieve this.

Harris said reducing dependence on fossil fuels was about stability, security, and protecting people from future shocks like the one we are experiencing today. Like other ministers in the past week, he forgot to mention climate change.

Regardless of market conditions, science tells us that every unit of oil or gas burned is one too many. Under US President Donald Trump’s leadership, the EU including Ireland has been among the regions of the world rolling back climate obligations. If there is one silver lining to be found in the current spike in fossil fuel prices, it is a reminder that their eradication remains a worthwhile objective.

On Friday, I reported on the recent climate pitch day organised by Wake Up Capital days before the bombing of Iran started. Climatetech start-ups and investors taking part in the event didn’t know that oil and gas prices would surge in the following weeks, making their businesses more valuable.

While compliance with climate regulation has suffered as a business, there is no lack of interest in deep technologies addressing the core objectives of energy savings and fossil fuel replacement, founders and VCs told me. That’s simply because they make their customers money.

“You can argue they are good for the planet, which they obviously are. But then at the same time, why the companies are investing in those technologies might be solely, in some cases, for the basis that it’s actually good for their P&L,” said Terhi Vapola, managing partner and founder of the Finnish firm Greencode Ventures.

This is why a company like Dublin-based HT Materials Science, which makes an additive allowing cooling fluids to achieve the same performance with lower energy consumption, can now launch a €25 million series B fundraise, with much of its growth taking place in the US. Its existing investors are not all climate enthusiasts – they include Saudi Aramco, the largest oil corporation in the world.

The investment community has learned to target available funds more narrowly at efforts that save both money and carbon most efficiently. It is up to the Government to show it can do the same.

*****

Elsewhere this week, Francesca interviewed Andrew Johnston, the London-based managing partner of Addleshaw Goddard, as the international law firm gathered 1,500 of its lawyers in Dublin. Four years after it merged with Eugene F Collins, Johnston said Addleshaw Goddard was still “scratching the surface” of what it can do in Ireland.

Tom reflected on the untimely death of Keith Ryan, the managing director of the Irish office of Swiss bank Julius Baer, aged just 50. Ryan was a trusted advisor to some of Ireland’s most accomplished leaders and families, but he never saw them merely as clients – he treated them as friends.

In a series of endearing and illuminating columns, John Looby chronicled the travels he has undertaken since stepping away from finance. From Durham to Japan and Washington, he went in search of some answers and crossed paths with John Steinbeck, Warren Buffett, and close friends.