The global energy landscape remains locked in a high-stakes balancing act as the conflict in the Middle East continues to dictate market sentiment. While political rhetoric suggests a potential window for resolution, the reality of damaged infrastructure and shifted military assets maintains a high risk premium. In Europe, the focus is shifting from immediate shock absorption to long-term structural resilience, evidenced by a dramatic rethink of nuclear and coal policies as governments scramble to decouple from volatile gas markets.

‍

Macro and others

Oil Markets and Geopolitical Volatility Oil prices trended upward this week as traders balanced President Trump’s optimistic claims that the Iran conflict could end "within weeks" against the reality of a continued U.S. military buildup. Brent crude rose above $105 a barrel, while WTI hovered near $103. Despite the diplomatic signaling, analysts warn of market complacency; the near-closure of the Strait of Hormuz has created a supply shock unparalleled since 2022. Even if hostilities cease quickly, the timeline for repairing damaged facilities and restoring normal flows remains a significant "known unknown" for global balances.

‍

European Energy Policy Recalibration The sustained price pressure is forcing a fundamental shift in European energy strategy:

• Germany: In a notable policy pivot, Economy Minister Katherina Reiche has called for a rethink of the nation’s opposition to nuclear power, citing the inherent vulnerability of over-reliance on gas.

• Italy: Parliament has passed a sweeping energy decree to cut power prices, which includes a controversial move to postpone the coal phase-out from 2025 to 2038. The decree also introduces mechanisms to compensate gas-fired plants for EU ETS costs, a move currently under scrutiny by the European Commission.

• EU Strategy: Energy Commissioner Dan Jorgensen signaled that the EU is considering a return to emergency-era measures, including price caps and windfall taxes, to contain a fresh price shock that has already added €14 billion to the bloc’s fossil fuel import bill.

‍

‍

Carbon markets

Compliance Markets (EU ETS) European carbon prices demonstrated resilience, posting a 3.2% monthly gain in March despite year-to-date weakness. Traders appear to be in a holding pattern ahead of imminent European Commission proposals regarding the Market Stability Reserve (MSR).

• ETS2 Expansion: The EU Parliament’s environment committee (ENVI) has proposed extending the validity of allowances in the upcoming ETS2 (buildings and transport) reserve until 2035. This includes a compromise to retain an invalidation clause for unreleased allowances, albeit at a reduced rate, to ensure long-term scarcity while providing a buffer against immediate price spikes for consumers.

Voluntary Carbon Markets & CORSIA In the aviation sector, Russia is moving to certify its national carbon standard for use in CORSIA Phase 2. This would allow Russian carriers to meet international offsetting obligations using domestic projects. However, the broader voluntary market faces headwinds; with Middle East conflict disrupting flight paths and fuel supplies, participants are increasingly questioning whether the aviation industry will maintain its projected demand for offsets in a high-cost environment.

‍

Renewables and biofuels

Global Capacity and Grid Constraints Renewables reached a major milestone in 2025, accounting for nearly 50% of global electricity capacity, driven by a record 511 GW surge in solar installations. However, the grid bottleneck is tightening. Think tank Ember warns that over 120 GW of planned projects in Europe are at risk of being stranded due to infrastructure constraints, particularly in Eastern Europe and the Netherlands.

Biofuels and Biomethane Developments

• Indonesia: President Prabowo Subianto announced a target to implement a 50% biodiesel blend (B50) by 2026. This acceleration is a direct response to the Middle East conflict, as narrowing palm oil-gasoil spreads make domestic biofuels more economically attractive compared to expensive imported gasoil.

• Italy: The EU approved a €6 billion support scheme for renewable hydrogen and biomass, utilizing two-way contracts for difference to scale production.

• Germany: The biomethane sector is sounding the alarm. EnviTec Biogas warned that proposed amendments to the Energy Industry Act could stifle investment by allowing grid operators to disconnect plants after only ten years a period considered too short for infrastructure cost recovery.

‍

Corporate sustainability and regulation

The Rise of Carbon Removal Offtakes Despite the broader cooling of the ESG market noted in previous weeks, high-profile tech firms are doubling down on nature-based solutions. Google, Meta, and McKinsey signed agreements for over 130,000 tonnes of carbon removal through the Symbiosis Coalition. These 10-year contracts focus on US-based reforestation, signalling that while general ESG sentiment may be consolidating, corporate appetite for high-quality, scientifically-verified carbon removal remains robust among the technology sector.