EU plans electrification push to cut oil and gas use after Iran war disruption

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EU electrification push to cut oil and gas

Highlights

An EU draft proposal plans a 2040 minimum electrification target for total energy consumption, as response to costly Iran war-related oil and gas disruptions.
The war has increased the EU's oil and gas import bill by 50 billion euros since late February, driving urgent electrification of vehicles, heating, and industry.
The Commission will propose VAT cuts for EVs, batteries, and heat pumps, auction funding for electrified industrial projects, and measures to phase out fossil fuel subsidies in 2024.

Draft measures target transport, heating and industry

As reported by Reuters, a draft European Commission proposal says Brussels plans to set a 2040 target for a minimum share of the EU's total energy consumption to run on electricity, although the text does not yet specify the percentage.

The plan remains under development and forms part of the EU's response to disruption from the Iran war, which has driven oil and gas prices sharply higher in import-dependent Europe. According to EU data cited in the draft, the war has added 50 billion euros to the bloc's oil and gas import bill since late February.

Faster electrification would involve a wider shift from petrol and diesel vehicles to electric vehicles, replacing gas boilers in homes with heat pumps, and moving industrial processes toward electric furnaces and other technologies powered by electricity rather than fossil fuels.

Funding, tax changes and procurement reforms

The Commission is preparing measures to address the high upfront costs that often slow adoption of electrified technologies, even when they are cheaper to run over time. The draft says the EU executive will consider requiring heat pump installations in public buildings through updated public procurement rules and may also strengthen procurement targets for electric vehicles.

Brussels also plans to propose a framework that would allow EU member states to cut VAT on household batteries, EVs and heat pumps. Later this year, it also plans to launch an EU funding auction for industrial projects that generate heat using electricity and renewable energy sources.

The draft further says the Commission will propose measures later this year to phase out fossil fuel subsidies, a step intended to improve electricity's cost competitiveness against oil and gas. It describes efficient electrification as necessary in a period of recurring geopolitical turbulence and volatile global markets, arguing that an energy-independent Union powered by clean, domestic and affordable energy is a matter of sovereignty.

Our earlier report on the U.S.–Iran strikes and the Strait of Hormuz escalation detailed how attacks on commercial shipping and subsequent military retaliation raised the risk of renewed disruption to a route that has carried roughly a fifth of global oil and gas flows. We noted that the flare-up drove Brent sharply higher and added fresh volatility for energy importers and markets as ceasefire expectations broke down and diplomatic outcomes remained uncertain.

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