EU Expends $21 Billion on Fuel Subsidies Amid Nigeria’s Exit

•Brent rises above $100 as China curbs fuel exports

Emmanuel Addeh in Abuja

The European Union governments have spent €17.9 billion, equivalent to about $21 billion, this year to cushion households and businesses from the impact of higher oil and gas prices, even as Nigeria has largely exited its long-standing petrol subsidy regime.

The European Commission, in a note prepared for discussions by euro zone finance ministers on October 8, disclosed that 25 member states had introduced fiscal measures since the outbreak of the Middle East conflict to mitigate the impact of rising energy prices.

The measures represent about 0.1 per cent of the EU-27’s Gross Domestic Product (GDP).

The disclosure comes against the backdrop of renewed volatility in global energy markets, with Brent crude yesterday climbing back above $100 a barrel as concerns over refined fuel supplies added to the pressure created by the conflict in the Middle East.

The commission, however, cautioned that more than two-thirds of the $21 billion intervention consisted of untargeted price measures, arguing that future support should be directed more specifically at vulnerable households and businesses, while limiting fiscal costs and remaining consistent with the bloc’s efforts to decarbonise its energy system.

However, the contrast with Nigeria is significant. President Bola Tinubu announced the removal of the country’s petrol subsidy in May 2023, shortly after assuming office, with the government subsequently defending the decision as necessary to end what it described as an expensive and distortionary system.

In a July 2023 national broadcast, Tinubu said the subsidy had outlived its usefulness and acknowledged that its removal had pushed up fuel costs, with food and other prices subsequently rising. The pronouncement has subsequently raised petrol prices to about N1,500 per litre.

But unlike Nigeria’s approach, the measures adopted by EU governments in response to the latest energy shock have included fiscal interventions intended to shield consumers and businesses from higher energy costs.

The European Commission said, however, that such measures should be temporary and carefully designed rather than broad-based price interventions.

The commission also urged member states to increase investment in electricity grids and adjust energy taxation so that electricity is taxed less heavily than gas. The measures, it said, would provide incentives for consumers and businesses to shift away from fossil fuels while strengthening the bloc’s power infrastructure.

The latest European intervention follows a renewed increase in global oil prices. Brent crude, the international benchmark, rose 2.9 per cent to $100.87 a barrel, while US West Texas Intermediate gained 1.4 per cent to $91.72.

The rise followed reports that PetroChina, China’s state-owned oil company, had cancelled a number of gasoline and jet fuel shipments scheduled for October, raising concerns about refined-product availability as the global market continues to adjust to disruptions in the Middle East.

Although crude flows from the region have been recovering towards pre-war levels, refined fuel supplies, particularly gasoline, have remained tighter. The resumption of Saudi Arabian tanker loadings from its Red Sea port of Yanbu has provided some relief after the kingdom restarted operations on its East-West Pipeline, offering an alternative route for moving crude from the Gulf.

The recovery in crude flows had previously helped moderate oil prices, but traders remain focused on the possibility of prolonged disruption to fuel supplies as the conflict continues.

For Europe, the renewed energy shock is also complicating the economic outlook. The European Commission said euro zone growth this year was likely to be somewhat stronger than its previous 0.9 per cent forecast, but projected weaker growth next year than its earlier estimate of 1.2 per cent.

Inflation is expected to remain around three per cent this year, while the commission projected 2027 inflation at 2.3 per cent, higher than its previous forecast. It also warned that borrowing costs for member states had increased substantially, underscoring the need for fiscal prudence.

The commission posited that governments can still provide relief when energy prices rise, but such interventions should be targeted, temporary and fiscally sustainable.

It cited lessons from the 2022-2023 energy crisis, when European governments deployed substantial support to protect households and businesses from soaring energy bills.

For Nigeria, where the petrol subsidy was removed as part of a wider reform programme aimed at reducing government expenditure and allowing fuel prices to reflect market conditions, the European response highlights a different policy approach to managing energy-price shocks.