How Can Europe Solve Its Energy Crisis?

November 07, 2022

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Europe seems to be implicated in an energy crisis by its involvement in the Russia-Ukraine crisis.

 

The price of gas has been multiplied by more than ten times this year compared with the previous year. As winter is approaching, how Europeans will spend their winter has become a big headache for the continent’s leaders. All these problems of energy shortage seem to be created by the Russia-Ukraine crisis. 

 

Indeed, energy cooperation between Russia and Europe has existed for many years, and can be traced back to the Soviet Union era. But when the Ukraine crisis erupted, European countries joined the U.S. in launching a package of economic sanctions against Russia. Then cutting off the energy supply from Russia becomes a hot debate in Europe. The U.S. offered to replace Russia as the LNG provider. Could America’s aid solve the European energy crisis? Or is it only a camouflage for the U.S. to gain strategic advantages?

 

With the bombing of the Nord Stream pipelines, European people suddenly become vigilant. As the in-depth investigation of the incident goes on, the public opinion of European countries is likely to turn around.

 

The economic and social situation in Europe is deteriorating, and radical populism is rising. If European liberals don’t change their position vis-à-vis the U.S. in the Ukraine crisis, they might be chased from the political arena by far-right political forces. Europe would be further divided, and the European integration process will be in jeopardy. In order to prevent such a scenario, Europe may also have to rethink its position in the Russia-Ukraine crisis. 

 

Europe is completely taken hostage by the U.S. at the beginning of the Ukraine crisis.

 

At the beginning of the Ukraine crisis in late February, attention was drawn entirely to Russia’s special military operation against Ukraine. Public opinion in the United States and Europe continued to exaggerate Russia’s aggression. On social media, self-media broadcasters are constantly posting short videos of battlefields. It has been difficult to tell the truth from the false. Few people asked how all this happened.

 

However, a German geopolitical analyst posted a blog saying, make no mistake, the war in Ukraine is neither a war against Ukraine nor a war against Russia. It is actually an operation against Germany. When the Nord Stream 2 gas pipeline was opened, the United States was worried that the energy cooperation between Russia and Germany would free Europe from the control of the United States. The United States was determined to use Ukraine as a time bomb to detonate a crisis and suspend the energy cooperation between Russia and Europe. Before the Russian military operation, the United States instigated the Ukrainian army to launch a large-scale military operation in eastern Ukraine. Russian media claimed it as an “ethnic cleansing” of Russian-speaking residents of the Donbas region. Therefore, before launching the current military operation, Russia described it as a “counterattack.” However, as the Ukrainian war unfolded, attention seemed to be drawn to the changes on the battlefield, and no one cared about the context in which the war broke out.

 

Indeed, in recent years, the United States has been increasingly worried about Europe’s push for strategic autonomy: first, Germany has been deepening energy cooperation with Russia, as marked by the completion of the Nord Stream 2 natural gas pipeline, which will greatly reduce Europe’s energy dependence on the Middle East, America, and other energy providers; second, Europe has been engaged in re-industrialization. With a cheap energy supply, Europe’s recovery of manufacturing has experienced a revival, and Europe has also been engaged in national defense autonomy. France and Germany engaged in European military division of labor cooperation, trying to use the European defense integration standard to weaken the US dominance in arms in Europe, and finally, Europe has also vigorously been promoting the role of the euro on the international stage, with euro bond issuance once equaling dollar bonds, and Europe’s energy cooperation with Russia was pushing for euro settlement in lieu of the dollar, which will give a “bad example” and eventually raise questions about the US dollar hegemony in the settlement of energy. The United States has had many reasons to be concerned about trends in Europe, giving the country growing incentives to interrupt Europe’s energy cooperation with Russia.

 

Since the global financial crisis in 2008, the United States has been looking for new technologies that can lead to another stock market boom. As a result, the technology of developing shale gas and shale oil, which had been abandoned in the 1970s, was revisited. It has become a “new energy technology.” 

 

The extraction of shale gas and shale oil is more expensive than the extraction of gas and oil from ordinary large fields, and requires the injection of water and chemical products to “squeeze” out the natural gas and oil. In the past, major energy companies in the United States owned a large amount of large oil and gas fields yet to be exploited, and they could buy oil and natural gas abroad at a low cost, so no company was willing to put money in enlarging the exploitation of shale oil and shale gas. 

 

However, after the global financial crisis, the Federal Reserve lowered interest rates to zero and implemented several rounds of quantitative easing. Investors in the financial market could borrow cheap funds at negligible costs to snap up shale gas and shale oil companies’ shares and bonds. And these small companies had quickly improved their mining technology because of the large amount of cheap capital available. The development of shale gas and shale oil sprung up, and the United States had also rapidly transformed from an energy importer, to an exporter of oil and natural gas. 

 

However, the U.S. needs to find new buyers for more oil and gas around the world. In Sino-US trade negotiations, the United States has repeatedly proposed that China should commit to purchasing a large amount of American oil and natural gas. Of course, opening the European market is also a dream of the United States. However, there has been long-term energy cooperation between Europe and Russia, and Russia is Europe’s largest energy supplier. According to the EU, it relies on Russia for about 45% of its coal imports, 45% of its natural gas imports, and 25% of its oil imports. Germany’s natural gas imports from Russia accounted for more than 50%, while Austria’s natural gas imports from Russia accounted for 80%.

 

To open up the European energy market, it has become a priority for the U.S. to reduce the inertia of Europe’s energy imports from Russia. Creating a geopolitical crisis is certainly the best option. After Russia launched its special military operation against Ukraine, the United States appeared to have solved the problem. European public opinion was overwhelmingly accusing Russia and insisting on supporting EU sanctions against Russia. The European Commission even issued a detailed schedule for cutting energy supply from Russia, and formulated a plan to completely cut off any energy imports from Russia from 2027 to 2030.

 

As Europe is reducing its natural gas imports from Russia, it can only replace it by importing more from other places. Although Europe has expanded its natural gas imports from the Middle East and North African countries, the supply capacity of these regions is simply a drop in the bucket compared to Europe’s natural gas demands. At this time, the United States has come forward and promised to solve the energy crisis facing Europe. It looked not only like a “good guy” for a while, but also solved the problem of expanding the US shale gas export market. European countries such as Germany have already started their plans to build new LNG terminals in preparation for expanding the capacity to import LNG from the United States.

 

Even if the United States is going to provide Europe with an “unlimited” energy supply, it only turns out to be what Chinese ancestors described as “distant water incapable of quenching present thirst.” Even in the whole world, there are not so many ships that can transport LNG, and there are also limited terminals in Europe that can unload LNG. The cold winter is approaching. How are Europeans going to spend the winter when Russia’s natural gas supply is disrupted? However, some leaders of European countries have vowed that even if the people in Europe are starving and freezing, they will never bow to Russia. They must stand with Western democracies and firmly support Ukraine in countering Russian aggression.

 

Why have European public opinion and politicians become so obsessed with America in an international conflict that has little to do with them? Perhaps the book “Gekaufte Journalisten” by a German journalist named Udo Ulfkotte can tell us something. It was in 2014 that Ulfkotte was astonished by the crisis of the Ukrainian coup and decided to write a book from his own experiences, to expose how the United States controlled European public opinion by inducing and corrupting European media practitioners. Europe is an aging society, and most European inhabitants obtain information through traditional media: newspapers, magazines, radio, and television. As long as you control the traditional media in Europe, you control public opinion in Europe. Since the birth of the Internet, traditional media has encountered huge commercial competition. Many media institutions cannot survive in the market and have “sold” themselves to capital groups, while American capital has penetrated the European capital market deeply, and can control certain European capital groups unbeknownst to anyone, thereby controlling European public opinion by extent. In this context, although the decisions made by European institutions are extremely unfavorable to European interests, European public opinion has not called these decisions seriously into question.

 

The evolution of the Ukraine crisis brings danger to Europe.

 

The Russian-Ukrainian military conflict has now stuck in a stalemate, and the mutual offense and defense are constantly changing positions. Although the leaders of several European countries have constantly expressed their hope that Russia and Ukraine should return to the negotiating table, the U.S. does not seem to want to stop the war. In an article, historian and Harvard professor Niall Ferguson said that the United States doesn’t want the Ukrainian war to stop, as he had been told by White House officials, because the U.S. hopes to use the Ukraine war to exhaust Russia, just as the Afghan war brought down the Soviet Union.

 

However, if Europe also allows the conflict between Russia and Ukraine to prolong, Europe may become the biggest victim.

 

1. Europe’s energy security has become fragile. The energy cooperation relationship between Europe and Russia can be traced back to the Soviet Union era. After the disintegration of the Soviet Union, energy cooperation between Russia and Europe became closer. The cheap and stable supply of natural gas and oil by Russia to Europe has played an important role in maintaining the global competitiveness of the EU economy. It is precisely because the price of fossil energy in Europe is cheaper than that in Asia that Europe can maintain the competitiveness and advantages of some manufacturing industries. If the EU replaces natural gas from Russia with LNG shipped by sea from the United States in the future, the EU will lose its competitiveness in the international market due to rising energy costs. Some people have calculated that when the EU imports natural gas from the United States, it needs to invest in the construction of new LNG unloading terminals, and new pipelines, and buy or rent a large number of LNG carriers. These costs combined will make European gas three to five times more expensive than local gas prices in the United States. Not to mention that the European energy supply is not safer, because American credibility is no better than Russian. Both the United States and Europe are engaged in “re-industrialization” and they are somehow competitive in the international market. If Europe’s energy supply depends on the United States, and energy prices are several times more expensive than those in the United States, the manufacturing costs in Europe will certainly be much higher than those in the United States, and European manufactured products will not be as competitive as those of Americans in the international market. 

 

2. Europe will suffer from a potential international capital outflow. Energy cooperation between Europe and Russia has been undermined, and the United States and European countries have continued to send weapons to Ukraine to create a large wall to try and block Russia. The curtain of the new Cold War in Europe has fallen again, and various acts of “brinkmanship” will emerge one after another, and the new Cold War will make Europe more unstable. An arms race and various minor frictions will make Europe an unsafe place to invest, and international investors will stay away from Europe. In fact, from the beginning of the Russia-Ukraine war, European capital began to flow out, mainly to the United States. 

 

Looking at changes in the exchange rates between the US dollar and the euro, you can see the trend of capital flows. Europe had a good investment environment and attracted investment from many countries, including China. However, in pursuit of sanctions against Russia, calls by EU institutions and the European Parliament demanding the confiscation of Russian assets have been increasing, which has made foreign investors, especially Chinese investors, full of suspicion. The United States is trying to make a coalition with Europe to turn Russia and China into a so-called “axis of evil.” So, if the EU continues to amplify institutional rivalry with China in the future, will Chinese firms still consider their investment in Europe safe? If the security situation in Europe deteriorates and energy costs rise sharply, what are the chances of success in the EU’s efforts of “re-industrialization”?

 

3. There will be increasing social conflicts in Europe. Refugee waves have plagued Europe since the Arab Spring in 2010. Britain voted to leave the European Union because of, in part, fears of being implicated in the EU’s mandatory rules for accepting refugees. The Russia-Ukraine war has caused millions of Ukrainian refugees to stay in Europe. How can Europe “digest” these refugees? In recent years, economic growth in Europe has stagnated, and youth unemployment has been a serious problem. Immigrants and refugees will always become “scapegoats” and are considered to be the source of employment difficulties, because they are willing to accept jobs with harsher conditions and lower pay. The financial expenditure of EU countries has increased a lot due to the resettlement of refugees. In the future, divisions within EU member states over how to resettle refugees are only likely to grow.

 

4. Since the last sovereign debt crisis in the EU, fiscal balances have been a growing problem. The pandemic has made the fiscal position of countries affected by the previous debt crisis worse. Even before, they had to squeeze out money for debt repayment by tightening their finances, but they happened to be also countries most severely affected by the Covid pandemic, and struggled to increase fiscal expenditures to deal with the problems. Fortunately, the EU issued a special bond in 2020, which helped rescue member states for the first time. However, the debt of many EU member states remains precarious. As the Federal Reserve changed its monetary policy and began to raise interest rates sharply, the US dollar-euro exchange rate surged, creating new difficulties for Europe’s economic recovery. Rising debt interest rates in many countries will be the last straw, especially if the European Central Bank turns to tightening monetary policy like the Federal Reserve because of rapidly rising inflation.

 

5. Europe is likely to enter a new round of stagflation. Russia is an important energy exporter, and both Russia and Ukraine are important food exporters in the world. The Russia-Ukraine crisis has led to the energy crisis and food crisis. If the war does not stop, Western countries will continue to impose sanctions on Russia, and the de-globalization process will continue, making production much more expensive. The reorganization of the global industrial chain and the rising cost of manufacturing will definitely lead to stagflation, and Europe will be surely at the forefront of economic stagflation.

 

 

The Nord Stream gas pipeline bombing seems to have alarmed Europeans.

 

On September 26, 2022, both the Nord Stream 1 pipeline and the Nord Stream 2 pipeline exploded, causing a natural gas leak. Immediately, the public pointed the finger at the United States. Although the US government denied it in every possible way and kept stating that the destruction of the Nord Stream natural gas pipelines was never done by the United States, whether it is American journalists, scholars, or the European public, everyone’s attention is focused on the Biden administration. Indeed, there are not many countries that can do such things without leaving a trace, let alone those various motivations and incentives.

 

On September 30, the German Bundestag rejected the proposal to increase arms supplies to Ukraine by a vote of 179 in favor, 476 against, and 1 abstention. This is the first time since the start of the Russian-Ukrainian military conflict that a European country’s parliament has rejected a motion to increase aid to Ukraine. On October 5, German Vice-Chancellor Robert Habeck complained that “friendly” countries guided by the United States took advantage of Germany’s urgent need for natural gas and raised the price of natural gas sold in Germany to “astronomical prices.” According to reports, the price of liquefied natural gas sold by the United States to Germany is three times the price of Russian pipeline gas and seven times the price of domestic gas in the United States.

 

It was probably no accident that in both Germany and Sweden, an internal report of the RAND Corporation has been revealed. The so-called RAND report on Europe is very interesting, and at least reveals the different interests of the United States, Europe, and Russia in this crisis.

 

The “RAND report” believes that the deterioration of the US economy is likely to cause Democrats to lose in the midterm elections in November 2022, and Republicans will launch a motion to impeach the President after they hold a majority in Congress. Therefore, the Democratic administration must avoid this outcome at all costs. The report believes that the United States urgently needs foreign capital to flow into the United States to strengthen the banking system. And countries that can provide these capital services are European countries bound by NATO. However, the report pointed out that Germany has become the biggest obstacle for the United States to obtain capital services from European countries. In the decades since reunification, Germany has struggled to lift US restrictions on it and strived to become a fully independent country. Now, the internal social and economic problems in the United States are escalating, which is good for Germany to speed up its independence.

 

The report further analyzes that since Brexit, the United States has lost leverage it once had to influence the EU’s cross-government decision-making negotiations. And if the United States is forced to withdraw from Europe, Europe is likely to become an independent Europe under the framework of a comprehensive political consensus reached by Germany and France. At that time, the United Kingdom alone will not be able to resist the combination of Germany and France. An independent Europe will not only become an economic competitor of the United States, but also a political competitor. The implication of the report is clear: the United States cannot allow Europe to become fully independent.

 

The report then analyzes “the fragility of the German and EU economies.” The report believes that Germany’s position in European economic development is irreplaceable, so if Germany collapses, the European economy will suffer a serious setback. The German economy relies on two pillars: one is access to cheap electricity from France, and the other is almost unlimited access to cheap natural gas from Russia. The latter seems to be more important. Stopping Russia’s natural gas supply could be devastating to German economy, and even the entire European economy. In a subsection titled “Managed Crisis,” the report states that the only viable way to ensure that Germany rejects Russian energy is to involve both sides in the military conflict in Ukraine. The report predicts that the United States’ further action in Ukraine will inevitably provoke a Russian military response. “The Russians are apparently unable to ignore the enormous pressure that Ukrainian forces are exerting on the unrecognized Donbas republic, which will likely allow the U.S. to declare Russia aggressor and to impose a prepared package of sanctions against Russia.”

 

The report argues that the conflict between Russia and Ukraine is a means for the United States to drag Europe into a quagmire, and the main target is Germany, the economic locomotive of Europe. The United States used Ukraine to provoke Russia and forced Russia to take military action; and after the conflict broke out, the United States and Europe launched sanctions against Russia, which were actually detrimental to Germany and Europe.

 

The “RAND report” predicts that “a reduction in Russia’s energy supply – ideally, a complete cessation of this supply – would have catastrophic consequences for German industry.” “It could lead to a continuous cycle of business closures, which could mean the demise of those businesses.” This will cost Germany 20-300 billion euros, which will not only be devastating to the German economy, but the entire EU economy will inevitably collapse. The report also goes out of its way to stress that it is not a recession but an economic collapse. As a result, the exchange rate of the euro will plummet, leading to a global sell-off of the euro. If the euro becomes a toxic currency, countries around the world will rapidly reduce the euro’s share of foreign reserves. The gap in this share will be filled by US dollars. The collapse of the European economy will lead to a sharp drop in living standards and a spike in unemployment, followed by an exodus of educated young people and skilled workforce, and the United States must be their best immigration destination.

 

European immigration will bring enough labor and assets to the United States and it will reverse the looming recession in the United States in the short term. In addition, the Russia-Ukraine conflict and the crisis in Europe can distract American society from current economic issues and can consolidate American society, which in turn will reduce the risk of Democratic electoral defeat. In the medium term, that will, within 4-5 years, cause the inflow of foreign capital, the redirection of logistics, and the reduction of competition in major industries. In the long run, that will bring the cumulative benefit to the United States to 7-9 trillion US dollars.

 

Coincidentally, after the “RAND Report” was revealed, on October 9, European websites revealed that European Commission President Ursula von der Leyen had been involved in conceiving sanctions against Russia, long before the Ukraine crisis erupted. She actually visited the United States four months before the outbreak of the Ukraine war and carefully discussed various measures to sanction Russia with Biden’s national security team at the White House, and since then they have been in close contact, with messages and communication between Biden’s national security team’s economic expert Daleep Singh and von der Leyen’s Chief of Staff, Bjoern Seibert, importantly. The entire process was planned by the European Commission and the White House, and important member countries of the EU, such as France and Germany, were kept in the dark. The news referred to von der Leyen as “the American President of the European Commission.” The explosion of this big “news bomb” will surely stir huge waves in European public opinion. It seems impossible for European leaders to keep calm this time.

 

At this critical moment, the Nord Stream pipelines were bombed, and if there is no hope of repairing the pipelines, seawater infiltration will invalidate the project that Russia and Europe had spent huge sums of money to build. If the Ukraine crisis continues to develop, the consequences predicted by the “RAND report” will be realized one by one. Does this not spell a doomed situation for Europe? Therefore, despite the denials of the US government in every possible way, European public opinion is likely to turn around eventually. In today’s “post-truth” era, what people believe has much more impact than the “truth.” It will become increasingly difficult for the U.S. to control public opinion only by manipulating traditional European media.

 

The recession in Europe is getting worse, inflation is running wild, and the proportion of people turning towards populist leaders is rising. The election of a far-right populist leader in the recent Italian election has served as a wake-up call for other European countries. Far-right populist leaders are gaining momentum across European countries. If they come to power, European integration will face an even greater crisis, because those people also have a common feature: they are all Euro-sceptics, opposing European integration and the EU’s supranational policies. If Europe wants to avoid the risks of far-right populists winning elections in the future, and if it wants to maintain the achievements of European integration after World War II, it must take a new path.

 

 

Please note: The above contents only represent the views of the author, and do not necessarily represent the views or positions of Taihe Institute.

 

This article is from the October issue of TI Observer (TIO), which is a monthly publication devoted to bringing China and the rest of the world closer together by facilitating mutual understanding and promoting exchanges of views. If you are interested in knowing more about the October issue, please click here:

http://www.taiheinstitute.org/Content/2022/10-31/1615423550.html

 

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