Self-Immolation, EU Style

It’s hard to gaslight when you ain’t got no gas

Given how much the EU needs inexpensive Russian energy, EU policy vis-à-vis Ukraine and Russia since at least 2014 has been at odds with the fundamental goal of serving the public interest. And while the current conflict does elicit outrage and moral issues, the EU must think longer term and more about self-interest, which is the only way to end the conflict. Ironically, this is also in the best interest of Ukraine because it is a more realistic approach to ending the war and tempering the more radical elements in that troubled country from seeking destructive maximalist goals that threaten WWIII.

The people desire a better life, lower inflation, gainful employment and a peaceful society. European politicians’ decisions to force inefficient sources of energy on the people, shutter efficient sources and isolate Russia run counter to these goals.

In 2024, EU annual economic growth is expected to remain weak at 1.1% and German is expected at 0%, much lower than the 2.8% in the United States. The IMF optimistically expects growth through 2029 at 1.5% and 0.8% respectively. Huge swathes of industry are shutting down or moving to locations with cheaper energy, including electricity, such as the United States.

German industry and workers are pessimistic about the future. In a recent German Parliament hearing, a Siemens executive remarked “There is actually nothing that speaks in favor of investing in Germany. That’s why most of our recent investments were made abroad.” “Deindustrialization is a valid threat . . . If so little investment continues in Germany, the decline will accelerate,” added the president of the Mechanical Engineering Association.

Even industry giants are not immune: VW just announced plans to close at least three factories in Germany, the first domestic shutdown in its 87-year history, and layoff “tens of thousands” of workers. Workers responded with a strike: 71,000 workers walked off the job on October 29.

Due to the ailing economy, rising unemployment and uncertainty about the future, large chunks of the population in the EU in general, and Germany specifically, are concerned about the choices made by policymakers. As a result, the Alternative for Germany (AfD) party continues to score victories, as expected. In neighboring Austria, the Freedom Party (FPÖ) has enjoyed even more success, winning a plurality in the recent national election. Both parties call for changes to economic policy and importing cheap Russian gas to improve competitiveness and quality of life.

Rather than accede to the people’s will, establishment politicians have refused to work with these parties and resorted to various political machinations to keep them out of the government as was also recently done in France and the Netherlands. This is also true at the level of the EU, where unelected bureaucrats seek to expand control over member states, particularly through forced control of the budget to favor selected areas, such as “green” agendas and military spending, whose multiplier effect is low. 

Mainstream media marches in lockstep, labeling these parties foreign stooges, or “Far Right,” the new catch-all term for the bad guys, and raising the specter of fascism and its historical horrors.

Instead of finding solutions, officeholders find it easier to squelch discussion through rules such as the Digital Services Act, which calls on media platforms to take “mitigation measures” against alleged “disinformation.” EU digital enforcer Thierry Breton even threated twitter (X) if it did not censor “harmful content,” i.e., content that EU bureaucrats do not like. Why bother competing in the marketplace of ideas when you can simply silence other views?

Many Europeans want economic change and policies that serve their rational self-interest. For example, Hungary, Austria and Slovakia want cheap Russian gas, which covers over two-thirds of their total gas needs. Supply continues under current long-term contracts, but unelected bureaucrats seek to end them by 2027 for political reasons, hurting those countries’ consumers and industry. In general, the idea that the world can seamlessly stop buying Russian oil and gas is delusional

Under EU pressure, some Ukrainian politicians have stated that the gas transit agreement will not be extended when it expires at yearend. However, this ignores the huge sums of money earned from gas transit, particularly if transit volume increases, and may be posturing ahead of negotiations. In 2024, Ukraine is expected to earn $1 bn in gas transit fees, a not insignificant 0.5% of GDP. Ukraine had previously offered transit to the EU. Its prime minister stated, “. . . if any of our European partners wishes to transit their gas, we are ready to provide such a service. The ball is in the court of the EU . . .” Also, Russia and Ukraine would like to maintain their reputation as a reliable gas supplier and transporter.

More recently, the idea of shipping gas purchased in Azerbaijan through Ukraine has been floated. This sounds promising but is unreal in any policy-relevant time frame: Azerbaijan lacks the output and infrastructure to increase exports to the EU in any meaningful amount. Russian/Azeri swap options have been mentioned. While technically the gas would be “Azeri,” reliance on Russian gas would remain the same. Similarly, traders could take title to the gas at the Russian/Ukrainian border and then resell onward, allowing the EU to claim no purchases from Russia, but this is mere window dressing.

Furthermore, the European Parliament has condemned Azerbaijan’s human rights situation and seizure of Armenian land, and called for an end to gas imports from that country. Given ongoing attempts to foment another color revolution in Georgia, the whole Caucus region remains volatile.

Africa is unable to increase gas exports due to conflicts and pipeline bottlenecks. Norwegian gas output is to decline slightly next year. Fracking remains a political hot potato in Europe.

Theoretically, imports of liquified natural gas (LNG) could be increased. However, LNG global capacity is constrained, and a large share of output is under long-term contracts. If the next US president reverses the Biden/Harris freeze on the issue of new LNG permits, US exports will increase, but this will take time. More importantly, Europe will have to pay dearly for additional LNG, further hurting its economy. This will also have an adverse effect on the economies of China, India and the Global South and lead them to burn more coal.

There are other ways to increase gas imports from Russia, but it appears European politicians have been instructed to not purse them. Chancellor Olaf Scholz recently stated that Russia stopped gas deliveries to Germany, sparking inflation, when in truth Russia has repeatedly stated its willingness to deliver gas through the one undamaged Nord Stream pipe. Annual capacity of that pipe is 27.5 bcm. Poland could reopen the Yamal-Europe pipeline with capacity of 10 bcm/year in the interests of helping the pan-European economy, instead of choosing to inflict damage on Russia and Germany.

As a consequence, the pain from decreased Russian supply and more expensive alternatives continues to have a negative effect, contrary to statements out of Brussels. The last few winters have been warm, but to rely on this is folly. Belief that high storage levels in Europe will last is also misplaced.

The economic drag caused by higher energy prices could be eased somewhat by restarting nuclear power plants, the last of which Germany closed in April 2023. These reactors could be restarted, but opposition from so-called “green” parties to this carbon-free source of energy remains strong. Also, many persist in the fallacy that solar panels and wind turbines can power a modern industrial society.

Thus, decisions made over the past few years by politicians, elected and unelected, do not serve the public interest. Policymakers should respect the will of their people, whom, in theory, they serve. Energy policy should be dictated predominately by the market, which chooses the most efficient solutions: nuclear power, and oil and gas. Foreign policy should be recalibrated to restore ex ante energy and trade flows.