Who is responsible for rising energy prices, Russia or the EU?

After coal, the EU wants to sanction oil. The EU does not import much Russian coal and it can be sourced from anywhere in the world at a competitive price. Depriving yourself of Russian oil is much more difficult, which is why the sanctions are postponed for several months.

Published with permission of author Samuel Furfari. The original appeared in Atlantico in French.

Who is responsible for rising energy prices, Russia or the EU?
by Samuel Furfari

After coal, the EU wants to sanction oil. The EU does not import a lot of Russian coal and it can come from anywhere in the world at a competitive price (although it is rising). Depriving yourself of Russian oil is much more difficult, which is why the sanctions are postponed for several months. It is true that petroleum and petroleum products (notably diesel) have always provided Russia with much greater revenues than natural gas, because it is a nobler, more sought-after product.

But how to do without Russian oil, whose refineries in the countries of Central and Eastern Europe were built in the 1950s and 1970s to process this particular type of oil? This is why Hungary refuses this embargo. A landlocked country, it will have more difficulty than others in importing crude while the Druzhba pipeline brings it home with cheap black gold. Although Article 122 of the Treaty of Lisbon deals with solidarity between Member States “particularly in the field of energy” (sic), when it comes to security of energy supply, the spirit of solidarity fades. Of course, refineries can be adapted to other types of oil, but this requires time and investment. Companies rightly wonder if these investments to process other crudes will be profitable. It is not easy, because one day – at the latest when Vladimir Putin is no longer in power – cheap Russian oil will again be imported into the EU. Isn’t that what was done with oil from the Middle East or Libya after the respective crises? Isn’t that what Joe Biden is currently planning with Iran and Venezuela and who makes the Wall Street Journal say that Biden is dancing with a Latin American dictator? Oil is so vital (92% of the energy of our transport system) that its vast market always wins out, and Russia obviously has an impregnable weapon: its low production costs and its pipelines decades.

Source: National Geographic – Note, this image did not appear in the original publication and is presented for the edification of readers less familiar with the European energy context.

The EU is trying to blame Russia for the high prices that citizens unfortunately have to pay for their fuel, cooking gas and electricity. This absurdity does not stand up to analysis at all.

Have we really forgotten the spike in oil and natural gas prices in the last quarter of 2021, when there was no war in Ukraine? Between April and December 2021, the price of crude oil rose from around $40 per barrel ($/bbl) to around $80/bbl and, during the same period, the price of natural gas increased tenfold. The price of coal also doubled over the same period and, in October 2021, it even tripled, as it was used massively to replace gas that had become too expensive. As the price of electricity is determined by the marginal price of the last kWh produced to meet demand (which is usually the one produced with gas), it has also followed the trend ( see my article Energy crisis or crisis of politics? in Diplomatie 113 Jan-Feb.).

Prices had risen sharply due to the strong recovery in China and Asia in general. When the recovery started in the EU, the market could not meet demand and it was normal for prices to rise. Noting that the EU could do nothing to reverse this global situation dictated by the market, the European Council of 21 and 22 October 2021 and the Energy Council of 26 October 2021 decided nothing concrete, leaving the Member States take social measures to try to minimize the impact of rising energy prices on households.

Besides the high demand, there is a more pernicious reason: the lack of investment in an industry that has always operated in continuous flow. Unlike, for example, a Tesla mega-factory or a nuclear power plant, the production of hydrocarbons requires continuous investment in prospecting and exploration. However, the EU has decreed in its Fit55 strategy that fossil fuels (which meet three-quarters of our energy demand) should be phased out and replaced by renewable energies, mainly wind and solar, while all efforts over the past half-century n made it possible to satisfy only 2.9% of the primary energy balance thanks to them. It is even preparing to ban thermal vehicles by 2035. This is of course an industrial mistake, because the rest of the world, and not just Africa, will continue to use petroleum products, populations not having enough electricity to switch to electric mobility, not to mention the new geopolitical constraints on materials. The Chinese will be able to sell their thermal cars instead of our manufacturers.

One would have thought that the war in Ukraine would open the eyes of the EU to its headlong rush, but the European Commission’s REPowerEU communication of 18 May accelerates the race towards the precipice, even going so far as to completely ignore the main EU’s source of electricity – nuclear electricity ― in order to promote only renewable energies. The “RE” obviously stands for Renewable Energy. A correspondent pointed out to me that REPowerEU will lead to RIP…EU.

This anti-fossil fuel backdrop in the EU is causing apprehension in the hydrocarbon industry as politicians seem determined to phase out fossil fuels. They do not forget that Jo Biden announced during his election campaign that the United States should go without oil. This had an immediate impact on US drillers who halted or severely limited their investments in the face of Washington’s regulatory onslaught. It is understandable that the risk of ending up with stranded assets is taken seriously. They no longer have the guarantee that the billions they must invest to maintain the flow of production that the world needs can be repaid. This has a strong impact on the markets, which perceive this as an abandonment of fossil fuels. L’ Kamel Ben-Naceur, estimates that in less than five years, investments in upstream hydrocarbons have fallen by 50%, “ which is almost unheard of. You have to go back to the mid-1980s to see this kind of trend“. Joe Biden and Ursula von der Leyen/Frans Timmermans bear a heavy responsibility for rising energy prices.

Added to this are the policies of Western banks that want to be “green” and therefore limit their loans to fossil fuel projects, which are essential for the world to “run”, since fossil fuels represent 85% of global demand. In addition, the boards of directors of energy companies must now face pressure from “green” investors, as was the case at the last general meeting of the giant ExxonMobil and in France with the change of name of TotalEnergies to avoid the image of the ugly tanker. This discourages young people from entering the fossil fuel industry, and a new phenomenon is emerging in the United States: a shortage of engineers and technicians in highly technical and innovative professions.

With the EU no longer the center of the world, demand for fossil fuels will continue, so energy prices are unlikely to stay at their high levels for long, especially as the war in Ukraine comes to an end sooner or later. The world has plenty of fossil fuel reserves and non-European companies will produce enough energy to satisfy the whole world. The world is not going to stop spinning because of the sanctions against Russia. Cyclical in nature, the market will be flooded with energy and EU companies will watch the train go by.

Will the war in Ukraine raise awareness that the world will continue to depend on fossil fuels, as the International Energy Agency had been saying for years, only to backtrack on its analysis because it was no longer politically correct? OPEC said last March that ” the IEA has compromised its technical analysis to fit its rhetoric .” Respectable and respected until recently, she will also be a victim of the renewable dream. Who will dare to denounce this race to the bottom? The recent BaFin decision, the German financial regulator, is it an epiphenomenon or a new trend? It has just delayed the adoption of the German taxonomy which was supposed to decree which investment funds are sustainable.

Either way, the EU is paying a heavy price for its unilateral energy disarmament.


Samuel Furfari
Professor of Energy Geopolitics
President of the European Society of Engineers and Industrialists

Samuel Furfari’s books are on Amazon https://www.amazon.ca/Samuel-Furfari/e/B00DW7D5KU/ref=aufs_dp_fta_dsk


  1. Peter F Gill

    There are other factors Sam, see: https://www.youtube.com/watch?v=IwvGlF9_fpw
    Regards Peter

  2. steve gouldstone

    I’ll take issue with the last sentence … it is of course *the population* of the EU who are and will be suffering from high energy prices and consequent energy shortages with reduced quality of life.

    Thanks largely to the populism and ignorance of their great leaders.

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