The EU’s Energy Policy Is Not for the People, But for the Hedge Funds

Measures taken by EU governments ostensibly to ameliorate the impact of high energy prices on consumers are not only insufficient, but wittingly criminal. Family rebates and tax reductions on gasoline prices just ensure handsome gains for financial speculators. When Italian Minister Roberto Cingolani speaks of a “colossal fraud”, he might be ignorant of how pricing mechanisms work, but the European Commission is not – after all, it created them!

Under the EU single energy market, energy prices are fixed daily on the various markets: Amsterdam for natural gas, Leipzig for electricity, London for gasoline etc. Long-term contracts have been dropped in favor of spot and future markets in accordance with the theory that the supply-demand mechanism will determine the best prices. But as those markets are open to non-commercial traders, hordes of speculators regularly organize an artificial scarcity or abundance of commodities, depending on the directions they have gambled on.

Former UN Conference on Trade and Development (UNCTAD) chief economist Heiner Flassbeck exposed such a perverse mechanism and blamed governments for not addressing the issue. “The crucial thing is to tackle speculation. This has not been discussed at all so far,” he told Telepolis on March 22. Speculation has “an enormous influence on the price of oil.”

Confirming what Flassbeck (and this newsletter ), the Wall Street Journal reported March 13 how hedge funds that had bet on energy prices made “sizable returns” after the Russian military operation in Ukraine. Soroban Capital Partners LP, it reports, made at least several hundred million dollars since February, and other winners include Castle Hook Partners and Pilgrim Global.

They bet that “a years-long drop in spending on new commodity supply and efforts to limit carbon emissions would push up materials prices and shares of producers, according to people familiar with the firms. Commodities-focused funds that made similar wagers are posting outsize returns — about 30% in the first two months of the year in some cases — after years of poor performance.”

Thus, while EU governments pay energy bonuses to households and subsidize gasoline prices, the money is flowing back to the hedge funds and the megabanks that lend the money which they borrowed from the central bank. It’s no wonder that ECB Vice President Luis de Guindos could say that the bank has “not seen a lot of stress” on the energy markets. The ECB is of course not concerned with stress on human beings.

Brussels could instantly deflate energy prices, if it wanted to. Two simple steps would suffice: 1. ban non-commercial traders from the future markets; 2. separate commercial banks from investment banks. But, this would mean some stress on the fortunes of the Davos billionaires.