The energy crisis in Europe is moving from the oil and gas markets to the public finance books and the deficit and debt rules, after the European Union dealt with its high cost in recent years as a temporary emergency that can be contained with time-limited measures.
According to Bloomberg and the British Financial Times, the European Commission is considering allowing member states to spend up to 0.3% of GDP on energy-related measures, without these expenses being treated in the usual way within the Union’s financial rules.
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The newspaper describes the proposal as an “energy margin” aimed at reassuring governments that supporting families and companies in the face of rising bills will not automatically expose them to excessive deficit measures.
This comes after energy prices rose following the expansion of tensions in the Middle East and escalating concerns about oil and gas supplies, especially through the Strait of Hormuz.
In a comment to Al Jazeera Net, Assistant Professor at Qatar University Jalal Qannas says that Europe faces in 2026 “one of its most complex structural economic crises,” after geopolitical tensions in the Middle East raised energy prices, at a time when the continent is suffering from a scarcity of supply after using up part of its strategic reserves.
Qannas believes that the crisis has put “the European Union’s financial rigor and the Stability and Growth Pact in direct confrontation with a difficult humanitarian and social reality,” noting that the impact of the shock may extend to European public finances until the end of 2027, with governments rushing to use their budgets and create support packages to protect citizens, consumers, and investors.
Slow growth and rising deficits
In its latest economic forecasts, the European Commission said that the eurozone economy may grow only 0.9% in 2026, compared to 1.4% in 2025, while inflation will rise to 3% in 2026.
The Commission estimated that the European Union’s budget deficit would rise from 3.1% of GDP in 2025 to 3.6% in 2027, driven by weak economic activity, high interest payments, defense spending, and measures to protect consumers and companies from energy prices.
The Commission indicated that gas prices increased by about 50%, and oil prices by about 65% between late February and late April 2026 in the shock scenario on which it based its expectations. It also expects energy inflation in Europe to exceed 11% in the second quarter of 2026, and to remain above 10% for the rest of the year.
Qannas warns that these developments may resurface the traditional divisions within the European Union between northern countries that are more financially stringent and southern countries that are burdened with debt and more vulnerable to energy price pressures.
Calculated financial flexibility
The European Commission was more conservative a few weeks ago, as the Directorate General for Economic and Financial Affairs prepared a memorandum in March 2026 in which it stressed that any measures to mitigate the impact of energy prices must be temporary and targeted, not increase demand for oil and gas, and take into account the sustainability of public finances. The memorandum also warned that granting special financial flexibility to energy could weaken the credibility of the European financial framework.
The International Monetary Fund expected, in its “World Economic Outlook” report issued in April 2026, that inflation in the bloc would reach 2.8% in 2026, compared to 2.6% in the euro zone. It also expected that general inflation in the euro zone would temporarily rise above the 2% level in 2026, and that it would remain higher than the European Central Bank’s target in 2027, with core inflation remaining above 2% until 2028.
Financially, the European Commission stressed that energy-related spending should remain consistent with the net spending paths approved by the European Union Council for each country, and that any deviation must be treated according to the same rules, whether caused by energy or otherwise.
She also said that activating general or national “exit clauses” was not appropriate at that stage, because these clauses are intended for broader or more serious shocks that threaten the economy or the sustainability of debt.
The “departure clause” allows countries to temporarily deviate from budget requirements in exceptional circumstances beyond their control, provided that this does not threaten the sustainability of the debt in the medium term.
The union’s traditional rules, established through the Stability and Growth Pact, are based on two elements:
- The budget deficit should not exceed 3% of GDP.
- Public debt must not exceed 60% of GDP, or be on a convincing decline path if it exceeds this threshold.
“Excessive deficit measures” begin when a member state violates the deficit standard, or when its debt remains above 60% of output without sufficient reduction.
But the European bloc appeared to be gradually more tolerant. In a letter summarizing the Eurogroup meeting at the end of March, finance ministers acknowledged that oil and gas prices were putting pressure on households and companies, raising inflation and weakening growth, while stressing at the same time that any short-term response must be targeted, temporary, and tailored to the circumstances of each country, and that fiscal space is limited.
“A painkiller that does not cure scarcity.”
Qannas believes that government support for energy bills, despite its social importance, remains “a pain reliever that does not cure the disease,” because the essence of the crisis is the scarcity of energy supply, not just weak demand.
He adds that this support may keep consumption high in the short term, isolating households and companies from real price signals in the market.
According to Qannas, the impact of support on inflation will be “contradictory and confusing,” as it may succeed in reducing apparent inflation in 2026 by curbing the immediate rise in energy bills, but it may pave the way for subsequent inflationary waves in 2027 when these packages begin to be withdrawn to avoid widening the fiscal deficit.
He also believes that continued high consumption may fuel core inflation, and increase pressure on the European Central Bank at a time when it is trying to return inflation to its target path.
Net cost
The rate of 0.3% of GDP seems familiar to the European Commission. In its review of the energy subsidy experience between 2022 and 2024, the Commission said that the net cost of energy measures in the European Union amounted to 2.2% of GDP cumulatively in that period, including 1.2% in 2022, 0.9% in 2023, and 0.1% in 2024.
She added that about 60% of the measures took the form of reducing prices, compared to 40% of income support, and that only a quarter of the measures were precisely directed to the groups most in need.
Income support for vulnerable families in the European bloc tends to take the form of energy vouchers, targeted reductions in electricity bills, or temporary government aid for the most vulnerable sectors such as transportation, agriculture, and energy-intensive industries.
The Commission says that the new temporary framework for state aid due to the crisis caused by the US-Israeli war on Iran will remain in effect until December 31, 2026.
Qannas believes that the European Union’s priority now is not only related to protecting families from “energy poverty,” but also to protecting the European industrial base, especially energy-intensive industries such as chemicals, steel, and fertilizers, which high costs may push them to reduce production or transfer part of their activities outside the continent.
He adds that the agricultural sector is also among the most fragile sectors, because the rise in energy puts pressure on the cost of production, transportation, and food supply chains.
The European Commission is thus trying to repeat the experience of 2022, when support measures reduced rising bills, but in return raised the cost of budgets.
In its latest memorandum, the Commission warned that broad price support may increase demand for energy, delay consumption reduction and create obligations that are difficult to withdraw politically.
Possible impact on Arab countries
Europe is a large buyer of energy and an important trading partner for a number of Arab economies, and any change in European energy subsidies may be reflected in demand, prices, inflation, and supply chains.
In 2025, the European Union imported energy products worth €336.7 billion. Eurostat data reveal that Qatar represented 8.9% of the Union’s liquefied natural gas imports, while Algeria represented 17.4% of pipeline gas imports.
Commission documents also show that the Gulf countries were the source of about 19% of the European Union’s net imports of oil and petroleum products in 2024.
For Middle Eastern gas exporters, European support can mitigate the decline in demand in the short term, because it protects consumers and companies from part of the price rise.
Qannas says that continued European financial support for demand means that European purchasing power remains relatively high, which may be reflected in the value of Qatar’s future exports of liquefied natural gas, Algeria’s exports via pipelines, and Gulf countries’ exports of oil and derivatives.
He believes that these flows may enhance financial surpluses in a number of Arab energy-exporting economies, and consolidate their position as a strategic resource in the new global energy equation.
But the impact in the medium term may be different, as the high cost of support may push Europe to accelerate policies to reduce dependence on fossil fuels, a policy that the Commission constantly emphasizes by increasing clean electricity, accelerating the deployment of renewable energy, and reducing dependence on imported oil and gas.
Qannas believes that temporary financial support may delay some efforts to combat climate change if it leads to continued dependence on fossil fuels, but at the same time it reflects a humanitarian and security dimension that cannot be ignored.
He concludes that the sustainable solution for Europe lies in accelerating the transition towards renewable energy and green hydrogen, because reducing dependence on global geopolitical fluctuations has become a condition for ensuring the comfort of citizens and the continued rotation of the wheels of factories in the future.
