Europe’s Looming Energy Crisis

Inflation, supply shocks, and imprudent energy policies have plagued Europe over the past year, and this can only spell misfortune for the continent. In August of 2022, the European Central Bank (ECB) reported that the year-to-year inflation rate for the European single market, commonly referred to as the common market, had spiked to 9.1%. The inflation index which the ECB refers to as the Harmonized Index of Consumer Prices (HICP) includes everything from food and beverage to miscellaneous items. However, it places less of an emphasis on the price fluctuations of crude oil and natural gas where much of the inflationary trend has come from. As of September 19th, 2022, crude oil futures – contracts in which you agree to exchange an amount of oil at a set price on a set date – are trading 21.65% higher than the previous year. Natural gas futures are rising at an even more alarming rate of 58.06%.

The origins of Europe’s current inflationary period are highly contested by economists. The consensus, however, is that supply shocks caused by decreased demand originated from pandemic restrictions and after pandemic restrictions were lifted consumers had surplus cash to spend, thus inflation. Nonetheless, the spike in Europe’s energy prices is a result of the Russo-Ukrainian War and the ensuing panic within the gas market. A few months following Russia’s invasion of Ukraine, the European Union adopted a sanctions package which included an embargo on Russian oil. These measures will ban imports of Russian crude oil after December 5, 2022 and ban petroleum product imports after February 5, 2023. By all intents and purposes, the actions taken by the EU are naïve and irresponsible considering that Finland, Latvia, Bulgaria, and Germany depend on Russia for over 50% of their gas supplies.

Nonetheless, there is a glimmer of hope. The French are currently working on increasing the supply of gas brought over from Algeria via The Maghreb–Europe Gas Pipeline. Furthermore, Spain, Britain, and France have dropped gas taxes levied on consumers and producers until 2023. In Greece, the government will cover 94% power-price rises for households in September. Up North, Norway is considering paying for 90% of power bills above 700Nkr ($75). The French are restricting electricity prices to a 4% increase and forcing the state-owned Électricité de France (EDF) to sell more power to other European nations. Lastly, the Romanians are placing price-caps on gas and electricity bills. Ultimately, with eroding wages due to inflation and increased cost of living, time will tell the toll that the energy crisis will have on Europe.