Power lines in Germany have failed to keep pace with the growth in renewable energy, creating bottlenecks and forcing operators to temporarily curtail production. Under the plan, new renewable projects in areas with grid bottlenecks will receive automatic grid connections if they agree to give up compensation payments during periods when electricity cannot be delivered to the network. Under the redispatch rules, operators would have to forgo up to 20% of their feed-in payments if their installations are curtailed for up to 6 years. Curtailment will only occur when grid utilization reaches 5%.

The government also plans to reduce support payments for small rooftop solar systems starting next year. Operators of solar systems with up to 25 kilowatts of installed capacity built from 2027 would be guaranteed payment for up to 36 months. After this transition phase, they would have to switch to direct marketing, meaning they would need to sell their electricity on power exchanges via a service provider, where prices fluctuate.

More specifically, from 2027, new private and commercial solar systems with a capacity below 25 kilowatts will no longer receive the traditional 20-year guaranteed feed-in tariff. Instead, during a three-year transition period, payments would consist of a base rate of 6.2 cents per kilowatt-hour plus a direct-marketing bonus of 1.5 cents, which is capped at four years. The plan also limits rooftop solar feed-in to 50% of the system’s rated capacity. The goal is to reduce overcompensation and encourage self-consumption and battery storage. Analysts expect the profitability of small solar to become increasingly dependent on home batteries or electric-vehicle charging.

The government is expected to spend about €16 billion ($18.3 billion) on renewable subsidies this year, with additional payments for curtailed generation of up to €3 billion ($3.4 billion), despite spending cuts in other areas, such as health, that have drawn criticism from constituents.

Critics of the reduced subsidy plan for renewables say the changes could slow investment in onshore wind and solar projects, as revenues fall amid increasingly negative power prices. Despite the reduced subsidies, Germany has kept its target to raise the share of renewables in its electricity consumption to 80% by 2030, up from about 58%. It is also planning additional auctions for renewable capacity. Onshore wind tenders are set at 15,000 megawatts for both 2027 and 2028, then decline to 12,000 megawatts in 2029 and eventually to 10,000 megawatts each year from 2030 to 2032. For ground-mounted solar, the volume remains flat at 14,000 megawatts per year, while biogas will see 1,000 megawatts auctioned in 2027 and 2028.

According to a draft law published by Germany’s Economy Ministry, from 2027, new renewable generators should receive support ‘in a way that benefits both the market and the system,’ which means rewarding projects that respond more closely to electricity demand and do not worsen grid congestion.

The cabinet is set to agree on the reforms on July 29, and then the plan will be sent to parliament to become law.

Conclusion

Germany is reducing subsidies for its renewable energy industry as wind and solar growth has outpaced the growth of the electric grid, causing bottlenecks. Renewable operators could lose up to 20% of their feed-in payments if their output is curtailed. And beginning in 2027, the government will reduce support payments for small rooftop solar systems, those less than 25 kilowatts, for three years. The government’s plans attempt to align renewable growth with available grid capacity and make the energy transition more affordable. The reforms are part of changes to the Renewable Energy Act, which must be updated before the current support framework expires at the end of 2026. Germany, however, is not reexamining the policy of increasing reliance upon renewable energy despite growing concern about the deindustrialization of Europe’s strongest industrial power due to high energy costs.

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The European Commission proposed a 3.7% annual cut to the cap from 2031 to 2035, and a 1.7% annual cut from 2036 to 2040. The pace of the emissions cap reduction has become an issue, with some governments calling for the annual rate, known as the Linear Reduction Factor, to be kept at the planned 4.4%. Some others called for it to be cut even lower, below 3%. Countries that have had factories close and companies struggle under high energy costs have pushed for the EU to lower their energy transition costs. According to Poland’s deputy climate minister, Krzysztof Bolesta, “What we don’t need is a mechanism bleeding the manufacturing sectors dry and making our continent a place of highest energy prices.”

From 2031, industries that commit to decarbonization investments can receive free emissions allocations until 2038, rather than the originally planned 2034. Companies would receive 80% of free allowances if they submit plans to invest in decarbonization, with the remainder released ​upon completion of the investment. As a guideline, the ⁠decarbonization investments should at least be equivalent to the financial value of the free carbon dioxide permits the company receives. Since 2013, ​the EU has given industries free carbon dioxide permits worth around €255 billion ($291 billion). Failure to draft a credible plan or miss milestones could result in the EU withdrawing the permit(s).

The ETS was introduced in 2005 and is the EU’s main tool for reducing greenhouse gas emissions. The ETS requires Europe’s industries and power plants to buy a permit, or allowance, for every ton of carbon dioxide they emit. Companies can buy extra permits if they emit more carbon dioxide than the free permits they receive or sell them to other companies if they have more than they need to meet the target. The EU sets a cap on total emissions that is reduced each year, making it more difficult for companies to meet the target and thereby raising the price of a permit. The extra costs companies accrue are added to the prices consumers pay for energy and other products, thereby being a de facto tax that has contributed to higher energy prices. Even before the Iran war spiked energy prices, Europe was at risk of deindustrializing in many of its key industries due to its climate policies.

Around 57% of the allowances in the EU are bought by companies at auctions. The remaining 43% of allowances are given to companies free of charge to cover some or all of their emissions. The EU generated around €43 billion ($49 billion) in revenue from the auctions in 2025.

Other EU Proposals

Alongside the EU changes to the ETS, the Commission announced a new target for electricity to make up 46% of energy consumption by 2040, doubling the current rate of 23%. The EU estimated that the new target would cut spending on imported fossil fuels by €260 billion ($297 billion) annually and would cut oil demand by 40% and natural gas demand by 70%. Since the escalation of the conflict in the Middle East, the EU has spent more than €50 billion ($57 billion) extra on fossil fuel imports. The EU’s phase-out of fossil fuels and increased electrification would require more electric vehicles, more heat pumps, and greater industrial electrification, with higher costs for consumers in member nations.

The EU is also planning to adopt guidelines to postpone penalties for energy imports that do not align with the bloc’s methane emissions regulations. The guidelines will urge member states not to apply penalties for a certain period, providing room for the market to adjust. The United States, Qatar and other gas-producing nations urged the EU to revise the rules, warning that they could jeopardize critical energy shipments, particularly LNG, that the EU needs as it reduces its imports from Russia.

Conclusion

The EU is making changes to its Emissions Trading System that will slow reductions in emissions caps and provide more free allowances to eligible companies, amid concerns about high energy prices caused by the Middle East conflict and Europe’s declining global competitiveness. Under the changes, industries that commit to decarbonization investments can receive free emissions allocations beginning in 2031 through 2038. There is considerable controversy within the bloc over the changes to the ETS, with some member states seeking no change and others calling for an even slower rate of reductions.

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Raising the electrification share to 46% would require a massive increase in electric vehicles, more widespread replacement of gas boilers with heat pumps in homes, electrifying industrial processes, and extensive upgrades of Europe’s aging power grids, requiring hundreds of billions of euros in investments. For the plan to succeed, policymakers would need to lower Europe’s high electricity prices, which are already much higher than those in the United States and have been leading to deindustrialization in Europe. Even then, for some firms it would not be economically feasible to electrify their operations.

According to the draft plan, achieving a 46% electrification target could reduce the EU’s fossil fuel import bill by up to €260 billion ($297 billion) per year by 2040. The EU imports more than 80% of the natural gas it consumes, and more than 90% of its oil. The Commission estimates that hitting the target of 46% would cut oil demand by 40% and gas demand by 70%. Since the escalation of the Middle East conflict, the EU has spent more than €50 billion ($57 billion) extra on fossil fuel imports.

The plan focuses on the main barriers identified by the Commission: the gap between electricity and gas prices; access to infrastructure; innovation; and the upfront cost of electrification technologies such as heat pumps and electric vehicles. The energy package also includes new measures on network charges aimed at making electricity grids more efficient by encouraging consumers, producers and grid operators to adapt their behavior. The initiative calls on member states to ensure electricity is not taxed more heavily than gas, arguing that taxation remains a barrier to electrification. However, the proposal stops short of dictating how countries set electricity tariffs. Instead, it establishes principles for national regulators to encourage smarter consumption, flexibility and more efficient grid management.

There is likely to be resistance from member states and challenges. The EU’s high consumer electricity-to-gas price ratios that compare the cost of a unit of electricity to a unit of natural gas per kilowatt hour are one challenge, as mentioned above. The EU electricity-to-gas price ratio currently exceeds 3.0, which is above the bloc’s targets of 2.5 for households and 2.0 for industry, mainly due to non-energy charges, levies, social tariffs and legacy subsidies.

According to the Commission’s Electrification Plan, “An energy transition with electrification at the forefront could, for example, support the business case for manufacturing electric vehicles in the EU by stimulating the uptake of approximately 120 million battery EVs compared to 8 million battery EVs today, and of approximately 100 million heat pumps compared to 30 million heat pumps installed today.” Around half of the EU’s gas consumption comes from buildings, which have been identified as one of the sectors with the greatest potential for electrification. On the other hand, buildings in Europe are not easily adapted to newer technologies, as demonstrated by low adoption of air conditioning.  This is in part due to the age of the housing stock and intrinsic construction techniques.

The EU’s electrification rate of 23% is below those of China, Japan, and South Korea, which are closer to 30%, but is close to that of the United States and the world average.

As part of the new plan, the Commission intends to pursue a series of initiatives to support investment in electrification-related skills. These initiatives include adopting an initiative to support the portability of qualifications and skills across the EU to attract more electricians and clean technology installers, providing incentives for manufacturers to support training of electricians and installers under a new Clean Heat Market Mechanism, and for a new Construction Services Act that will make it easier to obtain certifications for energy-efficient building and installation work.

The Commission plans to assess whether to make the electrification rate binding as part of the post-2030 Energy Union package.

Conclusion

The EU wants to phase out fossil fuels and increase electrification, which means more electric vehicles, more heat pumps, and more electrification of industry. The Commission is targeting a 46% share of electricity by 2040, double its current share, which has been stagnant for the last decade. The EU sees this as relying on its own “clean” energy rather than on fossil fuels, which it mostly imports due to policies that ban hydraulic fracturing and cut offshore oil and gas leasing. Since the conflict in Iran began on February 28, the EU has spent $57 billion more on fossil fuels. An electrification target of 46% could reduce the EU’s fossil fuel import bill by up to €260 billion ($297 billion) per year by 2040 and cut oil demand by 40% and natural gas demand by 70%.

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Since the Houthis announced their blockade of the Red Sea, several tankers have changed course to avoid the Bab el-Mandeb, heading north through the Suez Canal and potentially taking a much longer, more expensive route to reach Asian customers by sailing around Africa. Three oil tankers loaded with Saudi oil for China and India made U-turns in the Red Sea, heading towards the Suez Canal rather than transiting via the Yemeni coast. The Houthis told shipping companies not to load or discharge cargo at Saudi Arabian ports, or they ​may be targeted. Ships with links to Israel, the United States or Saudi Arabia are at a higher risk of being attacked ⁠by the Houthis and are being advised to avoid voyages through the Red Sea and Gulf of Aden until the threat level decreases.

Saudi Arabia has been using its Yanbu port as the outlet for its east-west pipeline via the Red Sea, where it was exporting about 5 million barrels of oil per day. Some 12% of global seaborne oil passed through Bab al-Mandeb before the war. Loadings at Saudi Arabia’s Red Sea port at Yanbu have averaged around 4 million barrels a day since the war began, up from around 1 million barrels a day before the war. Of those, about 2.5 million barrels a day head south through Bab al-Mandeb, toward Asia. Two Chinese supertankers carrying a combined 4 million barrels of oil were attempting to exit the Red ​Sea via the Bab el-Mandeb Strait on July 23, apparently escaping a blockade on shipments of Saudi oil by Yemen’s Houthi militias even as other Saudi vessels came under attack.

War risk insurance costs have risen with risk assessments for Saudi ports being re-evaluated, according to the insurance industry. Indicative war risk ​premiums rose to around 0.75% of the value of a ship, from around ⁠0.3% before the Houthi blockade announcement. The full closure of the Bab el-Mandeb strait, the southern gateway linking the Red Sea ​to the Gulf of Aden, would halt Saudi oil exports to Asia ​and could ⁠reduce global oil supply by 7%.

Re-routing cargoes from the Red Sea via the Suez Canal to reach buyers in Asia will add another 10,000 ​nautical miles and an extra 34 days en route to circumvent Africa, resulting in additional estimated freight costs of more than $5 million, ​excluding fuel or insurance costs. In addition, transit costs to cross the Suez Canal would be about $1 million per vessel, according to Reuters. Further, the Suez cannot handle Very Large Crude Carriers (VLCC’s), the largest class of oil tankers, which can carry upwards of 2 million barrels in a single load. The Saudis will be forced to source smaller ships to carry their oil.

Brent oil futures crossed the $100 per barrel mark for the first time since May 26 by late morning ET on July 23. The international benchmark was up about 7% at $100.70 per barrel by 11:41 a.m. ET. U.S. West Texas Intermediate oil advanced about 6% to $92.25 per barrel. Oil prices have risen more than 30% this month as fighting in the Middle East escalates.

Conclusion

Oil prices rose after Iran’s Houthi allies attacked two Saudi oil tankers in the Red Sea, after the militants declared a maritime embargo against Saudi Arabia on July 20. Shipping data showed both ‌tankers supply ⁠oil to Saudi power plants and local refineries. If the Bab el-Mandeb Strait – the “Gate of Tears” – that controls access from the Red Sea is effectively closed, it becomes a second chokepoint for oil leaving the Middle East that could halt Saudi oil exports to Asia and ⁠reduce global oil supply by 7%. An alternate route is through the Suez Canal, but it is much longer, takes longer, and is costlier, and it can only handle smaller tankers than VLCCs.

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One of the options the Chevron consortium is considering is rebuilding the pipeline from Kirkuk in northern Iraq to the Syrian port of Baniyas on the Mediterranean Sea that has been shut for more than two decades when it was damaged during the U.S. invasion of Iraq in 2003. The consortium plans to conduct technical studies to determine whether to build a new pipeline or update existing infrastructure to connect to pipelines through Turkey. The company has been in discussion with the Iraqi government for 12 to 18 months.

The Kirkuk-Baniyas Pipeline

Rehabilitation of the Kirkuk-Baniyas pipeline, if undertaken, is likely to take years and will have its own security and logistical hurdles. The pipeline is slated to have an initial transport capacity of 2 million barrels per day.

Chevron is also discussing investments in two major Iraqi oil fields, West Qurna 2 and Nasiriyah. Chevron had entered into exclusive talks with state-run Basra Oil for a stake in West Qurna 2, one of the world’s largest onshore oil fields. Iraq removed Russia’s Lukoil as the operator of the oil field in the southern part of the country, about 40 miles north of Basra. The field produces some 460,000 barrels of oil a day. Chevron has been given exclusive negotiation rights for a year to secure the deal. Nasiriyah is a smaller oil field in southern Iraq. Chevron and Iraq signed an agreement in principle last August to develop the Nasiriyah oilfield, consisting of four exploration blocks, in addition to developing other producing oil fields.

Iraq is the Middle East’s second-largest oil producer behind Saudi Arabia. It normally produces 5% of the world’s oil, about 4.5 million barrels a day, but its exports have dropped during the conflict with Iran because of the closure of the strait. Iraq’s oil production fell from 4.2 million barrels per day in February to 1.45 million barrels per day in May. The country’s large southern fields depend almost entirely on exports through the Strait of Hormuz (about 90% flow through the strait); the northern pipeline alternatives to Turkey’s Ceyhan terminal are limited.

The Trump administration supports new Iraqi Prime Minister Ali Al Zaidi, who has been in Washington recently, meeting with President Trump and attending a U.S.-Iraq Business Summit with Energy Secretary Chris Wright and others where $60 billion in deals were signed. The United States is facilitating conversation between Iraq and Syria on future energy development projects and supports the growing diplomatic relationship between the two countries. “We’re going to be doing a lot of deals,” President Trump said. “We’re going to create a lot of jobs for both countries, and we’re going to be taking out a lot of oil. A lot of oil is coming out, and the American companies are doing it.”

Gasoline and diesel prices are rising again due to the military actions by both the United States and Iran. On July 18, American diesel prices rose above $5 a gallon, hitting an average price of $5.088, according to AAA, and regular gasoline prices hit $3.992 a gallon – below its peak of $4.56 in the spring. President Trump said this week that the strait is reopened for all nations except Iran, but safety concerns remain as Iran is still able to strike at commercial shipping vessels in the waterway.

Conclusion

Chevron is taking steps to construct a pipeline connecting Iraqi oil fields and reservoirs to the Syrian coast as oil majors seek alternate routes to the Strait of Hormuz. Chevron is considering rebuilding a pipeline from Kirkuk, Iraq, to the Syrian port of Baniyas on the Mediterranean Sea. The deals with Chevron are part of a larger plan for Iraq to shore up investment from the United States. Iraq wants to increase its oil production and diversify its export routes to avoid the strait, as do other Middle East oil producers. Nations across the Persian Gulf have poured billions of dollars into new pipelines, rail corridors and energy storage hubs.

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Beginning in 2027, the regulations require fossil-fuel imports into the EU to comply with monitoring, reporting and verification requirements to reduce methane emissions. By 2030, imports exceeding a methane-intensity threshold would face penalties, with the fine amounting to up to 20% of their annual turnover. Over the past few months, companies in the chemical, oil and gas, and energy trading sectors have called for a delay in the requirements, warning that importers risk being pushed into non-compliance. They cited verification as a major bottleneck, with too few recognized protocols and verification bodies. ⁠No EU ​country has established a verification body to enforce the legislation, so companies currently have no way to certify compliance.

The International Energy ​Agency (IEA) has warned that the EU’s methane emissions rules could limit the oil supplies available ‌to the bloc. According to the IEA, around 22.5 million barrels per day of global oil production ⁠is expected to comply with the criteria in 2027, but not all of it would be available ​to the EU. Reuters reports that the EU imported 9.3 million barrels per day of oil in 2025. According to the IEA, the oil that EU refiners can import legally could decline by more than 50% because some grades of oil cannot easily be substituted and certain producers may prefer to sell into more profitable ​markets outside Europe. For example, heavy oil used in asphalt production is supplied largely by ​countries such as Mexico and Venezuela, which do not meet the EU methane standard.

The EU methane regulation could also be difficult for American LNG exporters to comply with. The EU requires importers to provide data “at the level of the producer,” which is likely to be particularly challenging for American LNG exporters. Unlike most of the world, U.S. LNG export facilities source natural gas from a vast pipeline network. Supplies are commingled, including volumes sourced from different production basins from many different companies with varied methane intensities.

According to the Energy Information Administration, in 2025, U.S. LNG exports to Europe reached a record 10.3 billion cubic feet per day, up from 6.3 billion cubic feet per day in 2024, and accounted for 68% of LNG export volumes. Exports to Italy and Poland rose the fastest in Europe.

Halfway through 2026, the United States remains the EU’s dominant LNG supplier, shipping it about 31.6 million metric tons, or 59% of the EU’s imports of LNG so far this year. By the same point in 2025, the U.S. had met about 55% of the EU’s year-to-date LNG imports.

Conclusion

Although 17 of the 27 EU member states requested specific adjustments to the import-related clauses of the methane rule, the European Commission has refused to change the regulations and is instead offering non-binding recommendations. The regulations target methane emissions within the EU and impose new requirements on fossil fuel importers. It highlights the difficulties the EU encounters when applying more rigorous environmental regulations to products from non-EU nations. As Europe moves to be free of Russian gas imports by 2027, it will become more dependent on imports from the United States and other countries, and how the methane regulation gets implemented will determine the future of LNG flows to Europe and oil as well. These regulations could have a detrimental effect on Europe’s ability to supply natural gas and oil to its people in the future, threatening EU energy security. The EU’s continued adherence to its climate change and net-zero orthodoxy is creating significant problems as EU economies are confronted with policy-driven energy costs and limits to availability.

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