11.12.2023 Author: Viktor Mikhin

Europe is freezing and on the brink of a severe economic crisis

Europe is freezing

According to the Oxford Institute for Energy Studies (OIES), “the prospect of the EU receiving more liquefied natural gas (LNG) from Egypt in the short and medium term looks unachievable due to tight gas balances and reduced imports form Israel.” Or, to put it in less academic terms, we can say that this is clearly what Russian President Vladimir Putin has said, namely that Europe, which has followed the US line and refused to buy cheap Russian gas, has caused itself and its people lasting economic, financial and political harm.

Last year, for example, Egypt shipped 80 percent of its liquefied natural gas (LNG) exports to Europe as European politicians sought to find a replacement for cheap Russian pipeline gas to the detriment of their countries’ interests. In June 2022, the European Union signed a framework agreement with Egypt and Israel that will allow Cairo to maintain “relatively high volumes” of LNG supplies to Europe. But, as a result of Israel’s war against the Palestinians in the Gaza Strip, Chevron shut down Israel’s Tamar gas field in October and halted exports through the East Mediterranean Gas pipeline, which runs from Ashkelon in southern Israel to Egypt.

Egypt, the most populous Arab country, faces rising gas demand from its population of 105 million, and its natural gas balance was already under pressure before the current conflict began on October 7, production having fallen to a three-year low this year. The country faced power outages that began in the summer and lasted through October, with high temperatures increasing the demand for electricity-hungry air conditioning. The high summer demand for power resulted in very low or no LNG exports in May-September.

Still, Egypt, which maintains strong energy ties with Europe, is eager to fulfill its commitments and extend the deal signed last June, which would keep LNG supplies to the EU relatively high. According to Tarek al-Mala, Egypt’s Minister of Petroleum and Mineral Resources, the country hopes to reach last year’s export level of about 7.5 million tons of LNG, 80% of which will go to Europe. But growing domestic demand as well as its infrastructure capacity is limiting Egypt’s ability to rapidly increase production. In order to balance its books, Egypt is trying to supply more gas to its domestic market while also ramping up exports in an attempt to alleviate its severe shortages of foreign exchange. Despite the resumption of LNG exports in October and November, the authors of the OIES report, along with other analysts, believe the conflict will continue to put pressure on Egypt’s LNG exports. “The June 2022 Memorandum of Understanding between Egypt, Israel, and the EU, committing to higher supply, is now probably undeliverable,” the OIES report states. In other words, Egypt will not be able to meet Europe’s energy needs, as first the Soviet Union and then Russia did, at extremely low prices.

It is no secret that Europe itself has taken the step of cutting off the supply of cheap energy. Either that, or Europe’s ally, the US has cut off the source of cheap Russian energy for political reasons. To take just one example, Germany’s Federal Network Agency has announced that its largest supplier of gas in the last year is Norway, accounting for 33% of its imports. Supplies of cheap gas from Russia, on the other hand, fell sharply to only 22% (down from 52% in 2021).

On the other hand, we see gas pipelines being closed or even blown up, nobody knows by who, just like in a war. Poland, for example, has simply closed the Yamal-Europe gas pipeline, which led – and still leads – to Germany. One of these systems was closed by Volodymyr Zelensky’s neo-Nazi government. Another is still working, but one of them has been closed. As Russian President Vladimir Putin said, in an address to the 3rd Congress of Young Scientists, “They receive money from Europe, including Germany, for arms, for their pensions, their welfare state system, their salaries. But they have cut off the Russian gas, which they need. And the Germans accept all this. And why? Because they lack sovereignty. It seems that some of their top politicians lack the skills to make proper, professional decisions. We know who they are. Everyone laughs at them. I won’t name them here. But really, everyone is laughing at them.” As the saying goes, you can’t sing the song without the words.

For example, consumption of gas in Germany fell dramatically in 2022, the first year of the crisis. According to the Federal Network Agency, Germany’s utilities regulator, consumption of natural gas fell by 14% compared with the average for the previous four years. Industry reduced its consumption by 15% compared with previous years, while private households and businesses cut their consumption by 20%. As Der Spiegel reports, gas prices have rocketed, causing disruptions in the energy markets, and forcing the major gas importer Uniper to seek support from the federal government.

Germany, once the savior of Europe, has become a liability, as without gas from Russia its economy is plummeting. The German opposition is calling for early elections before the crisis has gone too far. The German business community has good form when it comes to economic forecasts: exactly one year ago, the German Chamber of Commerce and Industry, DIHK, based on a survey of 24,000 companies, said that almost all sectors of the country’s economy are affected by the energy crisis. They also concluded that “the worst is yet to come.” And they were right. According to the IMF, this year Germany performed worst of all the leading economies, with -0.5% growth.

Germany now has a budget hole of nearly 60 billion euros, after the Constitutional Court ruled that the government may not divert unused emergency funding allocated for the Covid-19 pandemic to support green energy programs and help people pay their electricity bills. The ruling coalition is urgently making amendments to this year’s budget, citing extraordinary circumstances related to the cutoff of natural gas supplies from Russia. And who is to blame? Russian President Vladimir Putin has repeatedly offered Germany supplies of cheap energy, but the German leadership, caught in the tight embrace of the American grizzly bear, has consistently refused.

The current crisis in Germany, which is already being felt across Europe, cannot be overlooked because German industry has traditionally served as the backbone of the EU’s economy, and Olaf Scholz has had more to do with the sharp decline of both the German and European economies than anyone else. His inability in summer 2022 to take the initiative and order the launch of the Nord Stream 1 and Nord Stream 2 pipelines, the latter of which was ready for use and filled with gas, has triggered a decline in German power.

The situation in other European countries’ energy sectors is similar to that in Germany, and in some cases even worse. And all of this is largely due to Europe’s rejection of cheap energy from Russia. The USSR and later Russia were able to provide oil and gas in sufficient quantities to enable the European countries to develop successfully, supported by the German economy, which was widely regarded as the locomotive of the EU. But under pressure from the so-called democrats across the Atlantic, Europe has been forced to buy expensive American energy resources, and has as a result become impoverished, and is now, as the Western media admit, on the brink of a severe economic crisis. And here there can be no two opinions, this is the result of Europe’s refusal to use Russian hydrocarbons and its rash decision to replace them with other, far less reliable sources.


Victor Mikhin, corresponding member of RANS, exclusively for the online magazine “New Eastern Outlook”.

Related articles: