Europeans fall prey to prices

Conflict in Ukraine drives up costs as Europe bears brunt of Russia sanctions

Trade union members demonstrate in front of the Engie headquarters in Brussels on Nov 9. The cost-of-living pressure has added strains to people's livelihoods. (GEERT VANDEN WIJNGAERT / AP)

About 16,500 people took to the street in the Belgian capital Brussels on Dec 16 in the latest of a series of nationwide protests calling for higher wages and more purchasing power to alleviate a cost-of-living crisis fueled by soaring energy prices brought on by the Russia-Ukraine conflict, soon into its 11th month.

The protests almost paralyzed the city's metro and bus system, and about 60 percent of flights at Brussels Airport had to be canceled.

In a survey by the polling institute Kantar of 1,000 Belgians last month, a third of respondents said they were considering not paying their upcoming energy bills because of soaring prices.

On the day of the demonstrations, the Council of European Union adopted the ninth round of economic sanctions against Russia, including putting hundreds of additional entities and individuals on the sanctions list and under new export controls, in an effort to further hurt the Russian economy.

Under previously announced sanctions, the EU started banning coal imports from Russia on Aug 10 and forbade seaborne crude imports from Russia on Dec 5 and will ban Russian oil products from Feb 5.

A ban on Russian natural gas, which gets to the EU mostly through pipelines, is seen as more difficult because Russia was supplying EU countries with 40 percent of their natural gas last year, with Germany, Italy and the Netherlands being the major importers.

Germany suspended the Nord Stream 2 project when hostilities broke out in Ukraine in late February. Two alleged sabotage explosions near the Nord Stream 1 and 2 pipelines in September greatly reduced the gas supply that had already been falling because of technical issues that Russia described as relating to Western sanctions.

To meet its energy needs, the EU has sharply increased its imports of natural gas from Norway and liquefied natural gas from the United States at high prices.

Nearly doubled

As a result, energy costs for households across Europe are now nearly double what they were a year ago, according to the Household Energy Price Index announced last month and based on research in several EU countries.

The soaring energy prices also pushed annual inflation in the 19-member eurozone to 10.1 percent last month.

The European Commission, in its Autumn Economic Forecast issued in November, said that inflation will remain at 7 percent next year and GDP growth at only 0.3 percent.

France's President Emmanuel Macron has vented against the exorbitant prices of energy imports.

"American gas is 3-4 times cheaper on the domestic market than the price at which they offer it to Europeans," he said in October following an EU summit in Brussels. "These are double standards." At issue was "sincerity in transatlantic trade", he said.

A few days earlier, Macron accused the US and Norway of reaping "the real super profits" in benefiting from what he called "geopolitical war unearned income".

Yan Shaohua, an associate professor at the Institute of International Studies at Fudan University in Shanghai, said, "EU sanctions against Russian energy is a double-edged sword."

The EU ban on Russian oil has hurt Russia because it is so dependent on the market and it is difficult to find an alternative quickly, Yan said.

"Yet the sanctions have also had a backlash on industries and people's livelihoods in the EU, leading to soaring energy prices and prolonged inflation."

Gal Luft, co-director of the US-based Institute for the Analysis of Global Security, called the EU sanctions on Russian energy "an exercise in self-mutilation".

"The shift from piped Russian gas to LNG is a self-imposed permanent tax on European people and businesses because LNG will forever be more expensive," he said.

"This will inevitably cause migration of energy-intensive industries from Europe to cheap energy jurisdictions. The result: the permanent decline of Europe as an industrial powerhouse."

Yan Qin, an Oslo-based lead carbon analyst with the markets financial data provider Refinitiv, said that while the EU sanctions have reduced Russian exporting revenue to some extent, they have also had impacts on EU countries.

The EU's efforts to find alternative coal imports from countries such as Australia, Colombia and South Africa have pushed up prices, she said.

Wide impact

"The same effects are seen in the global LNG market too. The EU scrambled to replace Russian gas with other supplies, and its high demand pushed up LNG prices."

She questioned the effectiveness of the price cap on Russian oil at $60 announced by the EU and other Western leaders on Dec 2, saying Russian production costs are well below this cap and that it can also find other global buyers.

Speaking of the West's price cap, Luft said, "It is a hollow, feel-good action that will do nothing to harm Russia financially, let alone cause it to recalibrate its Ukraine policy."

Qin said she does not believe the EU will face major energy supply shortages this winter because of efforts to find alternative suppliers and sufficient LNG supply. "The question is then, at what costs?"

Because of the EU's rising demand for non-Russian energy, global energy prices have gone up significantly, she said. In Europe, natural gas prices are eight times higher than the average level over the past decade. Electricity prices, because of higher fuel prices, are six times as much as the average level in recent years.

"No doubt, the soaring energy costs have impacted EU citizens. Many industries are forced to curb production due to skyrocketing gas and electricity prices. Small business owners and households are facing astronomical energy bills.

"This is the main reason that the European Commission provided a rather pessimistic outlook for the EU economy next year in its latest forecast."

The EU has also drawn sharp criticism for its huge investment in LNG terminals and other related facilities for contradicting the bloc's climate-neutrality goal for 2050.

Rainer Quitzow, research group leader at the Institute for Advanced Sustainability Studies in Potsdam, Germany, said he saw "a risk if we build infrastructure that no longer makes sense if we want to achieve our climate goals".

"Once you have terminals and plants, it might be hard to get away from them, precisely because you have invested so heavily," the German broadcaster DW quoted him as saying.