Europe is in the middle of an energy crisis. Uncertainty about the flow of natural gas due to the Russian war in Ukraine has caused prices to rise. That price of natural gas has risen to as much as $500 per barrel of oil equivalent10 times the normal average, fueling fears of winter shortages and cold homes.
Important raw materials are already affected. fertilizer Production, which requires a large input of natural gas, is discontinued due to high prices. manufacturers are hoarding glass in anticipation of future bottlenecks. Climate change has made the situation worse, as a historic drought is drying up Europe’s rivers and reducing hydropower capacity. Rising energy costs have driven a rise in inflation in the UK, while Germany has suffered worst inflation since the 1970s energy crisis.
The supply disruptions that afflicted Europe in the winter of 1973-1974 provide a useful parallel to the current crisis. Europe faced a partial embargo on oil imports, a massive increase of the global oil price and the impending energy shortage.
Europe is in the middle of an energy crisis. Uncertainty about the flow of natural gas due to the Russian war in Ukraine has caused prices to rise. That price of natural gas has risen to as much as $500 per barrel of oil equivalent10 times the normal average, fueling fears of winter shortages and cold homes.
Important raw materials are already affected. fertilizer Production, which requires a large input of natural gas, is discontinued due to high prices. manufacturers are hoarding glass in anticipation of future bottlenecks. Climate change has made the situation worse, as a historic drought is drying up Europe’s rivers and reducing hydropower capacity. Rising energy costs have driven a rise in inflation in the UK, while Germany has suffered worst inflation since the 1970s energy crisis.
The supply disruptions that afflicted Europe in the winter of 1973-1974 provide a useful parallel to the current crisis. Europe faced a partial embargo on oil imports, a massive increase of the global oil price and the impending energy shortage.
Just as the shock of the 1970s proved less disastrous than predicted, this winter may not see blackouts, rationing or some fear collapsing on the scales. But even if disaster is avoided, the current predicament brings home the reality of Europe’s fragile energy security and the need to build resilience to both future shocks and the looming threat of climate change.
In the 20th century, Europe’s energy security, which used to rest on the continent’s rich coal veins, has been hampered by the increasing importance of oil. While Britain, France, and the Netherlands used their imperial possessions to meet domestic oil needs, Italy and Germany embarked on costly wars of conquest, aimed in part at capturing foreign oil fields.
After World War II, Europe’s dependence on imported energy became a political and economic reality. Middle East oil helped rebuild Western Europe by the Marshall plan. Until 1972 Western Europe was dependent on oil 59.6 percent of its energy consumption, almost all of which is imported from oil fields in the Persian Gulf and North Africa.
In October 1973, Syria and Egypt launched a surprise attack on Israel. When the US offered to help Israel, Saudi Arabia and other Arab oil-producing states chimed in embargo about oil shipments to America. The Arab oil states also gradually reduced production 25 percent between October 1973 and January 1974. They extended the embargo to Portugal and the Netherlands. In late October, OPEC used the war as a pretext for about double the price of oil, which again more than doubled in early January.
That “oil shock‘ and Arab embargo associated in the United States with long gas station lines, inflation and an economic malaise that lasted into the 1970s. But the shock was even more significant for Europe, which was heavily dependent on imported oil. In the winter of 1973, Arabian oil was eliminated 72 percent of the total Western European oil consumption. While not directly targeted by the Arab embargo, countries such as France, West Germany, Italy and the United Kingdom faced supply shortages due to Arab production cuts, while price hikes threatened to deplete foreign exchange reserves and plunge the continent into recession.
The Arab embargo against the Netherlands had far-reaching effects. Oil was imported in the port of Rotterdam and sent to Dutch refineries to be processed into petrol and other products. The area billed for 10 percent of western European refining capacity and 75 percent of the products were exported. The embargo caused supply shortages in Rotterdam, cutting off markets and potentially creating shortages across Europe.
It all looked catastrophic. As the United States struggled with the effects of the embargo, production cuts and price shocks, Immediate Impact Estimates of the crisis were bleak. predictions suggested that Europe would lose about 15 to 20 percent of its oil supply. The price shock would push up inflation and lead to a deep recession by mid-1974. “There is very little the Western Europeans can do,” says a CIA report closed.
But the worst fears never came true. While West German media made dire predictions of winter blackouts, the cuts amounted to just over 6 percent of total oil supply by mid-December, according to to the historian Rüdiger Graf. Introduced to the Netherlands energy rationingbut disruptions in oil flow have been mitigated by Western oil companies, including Royal Dutch Shell, who have “rescheduled” supplies from Arab sources to circumvent the embargo.
Europe had the resources to diversify its energy needs. France accelerated an expansion of its nuclear fleet. The UK put more capital into developing oil fields in the North Sea, a costly endeavor that made Britain one nonetheless net oil exporter in the early 1980s.
Most of OPEC’s new oil wealth was “recycled‘ from western banks. 197414 percent of OPEC’s financial surplus ended up in British banks, 40 percent in the European Economic Community foreign exchange markets and 20 percent in the United States. The long-term effect of the oil shock was to expand and enrich the European financial sector.
In contrast, the non-oil countries of the Global South lacked the resources of the western countries massive import costs due to higher oil prices. States borrowed or borrowed from OPEC, the World Bank, or private Western banks to cover the cost of higher energy imports. These loans laid the foundation for a Series of debt crises which shook the developing countries in the USA 1980s and 1990s.
The magnitude of the energy crisis in Europe today corresponds to that of the 1970s. But as with the predecessor, it is important not to get involved in apocalyptic predictions.
There is no doubt about it the prices are unbelievably high. However, power failures and serious heating or power shortages can be avoided by targeted consumption restrictions the situation in Great Britain and Ireland looks more serious than that of the mainland. Germany, the continent’s largest economy, has replenished its natural gas supplies 80 percent of capacity. Compared to 2021, Germany’s stock position appears to be strong. While European governments are likely to enforce this price caps To limit consumer pain, high regional prices will make Europe an extreme attractive Market for LNG exporters.
As in the past, Europe retains advantages over other regions due to its wealth, level of development and integration into global financial markets. Sri Lanka suffered from a almost total collapse this summer when its foreign exchange reserves were running low and it was unable to import more energy. Pakistan was rocked by protests over daily power cuts. Much of the developing world has already suffered energy uncertainty. The global energy shock has exacerbated these problems. The worst effects will be felt by some of the world’s poorest people.
But Europe still faces a major challenge. As in the 20th century, the continent’s developed, industrial consumer economies remain heavily dependent on imported energy. This leaves the continent vulnerable to external shocks, reducing its energy security. European countries, especially Germany, have shown themselves to be overly confident in the reliability of Russian energy. Despite its considerable resources and advantages, Europe faces a dark winter.
