“The energy crisis represents the greatest systemic risk for Europe”

LEurope finds itself in the midst of an unprecedented energy storm. In recent months, three simultaneous shocks have pushed the European Union (EU) towards the worst energy crisis it has ever known.

The first shock, which affects global energy markets, is a sequel to the pandemic. At the height of the Covid-19 crisis, in 2020-2021, investments in oil and gas fell sharply, leading to a deep imbalance between energy supply and demand. As a result, all fuel markets experienced supply shortages and high prices.

Then came the Russian clash, which began long before the invasion of Ukraine on February 24. Russia has been manipulating European natural gas markets since the summer of 2021, drastically reducing its exports and not filling up Gazprom-owned storage sites in the EU.

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Since the spring, Russia has been using its remaining supplies as leverage to force individual countries to ease sanctions on financial and technology transactions. Since the beginning of July, it has sent only a third of the volumes planned. Gas prices in the EU have therefore increased more than tenfold and European governments are trying to protect consumers against this price shock, distributing billions in subsidies.

Painful political compromises

Finally, several unfortunate coincidences have aggravated the already tense energy situation in Europe.

Corrosion problems prompted France to close half of its nuclear reactors, increasing gas requirements for electricity generation. A severe drought has caused Europe’s rivers and lakes to fall to extremely low levels, compromising not only the hydropower generationbut also thermal power stations, which have a need for cooling, as well as coal-fired power stations, which depend on waterways to transport coal.

Due to these three shocks, Europe will not have enough energy to meet demand during the winter of 2022. This represents the greatest systemic risk for Europe today, both economically and politically.

A disorderly energy crisis would not only drag the EU into a spiral of economic recession and social tensions, but would expose its political unity to the risk of energy protectionism. This would weaken its foreign policy, and in particular its position against Russian aggression in Ukraine.

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