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Energy crisis in Europe weakens industry, warns of recession and could split support for Ukraine

The powerful European industry, especially France and Germany, faces challenges that threaten its leading role. The industrial crisis, in addition to resulting in an economic crisis, places Europe in a need to restructure its energy sources and its political positions. As the European winter approaches, further EU actions become more urgent.

The crisis began before the geopolitical conflicts arising from the war in Ukraine. More than two years ago, the Covid pandemic 17 opened up the fact that the French pharmaceutical industry, for example, was no longer as strong as it used to be. , becoming highly dependent on Chinese and Indian inputs in the midst of a health crisis.

Then, the European automobile industry, especially the German one, which is historically an international highlight, faced the obstacle of the lack of components electronics, largely produced in Asia.

Now, with the energy crisis aggravated by the war in Ukraine and the European Union’s diplomatic disaffection with Russia, large international industries close their doors on the Old Continent.

The beginning and future of the energy crisis

For John James Loomis, professor of International Relations at Universidade Positivo, the world entered an energy crisis when it began to reopen commerce and industries after the peak of the pandemic. “In particular, China’s demand for coal increased, which pushed up natural gas prices as the country looked for alternatives, so the recent energy crisis in Europe was already underway in 2021”, he argues.

The professor recalls that, at that moment, Russia only started to fulfill its contractual agreements for natural gas, instead of meeting the increase in European demand. . “The move was seen as a move by Russia to increase gas prices even further, but in retrospect we can think of a preparation for war in Ukraine”, analyzes Loomis.

Using the Natural gas as a geopolitical weapon is nothing new for Russia and its Central and Eastern European neighbors. The Nordstream pipeline projects were, in part, a response to energy disputes between countries such as Ukraine and Russia, which would later impact on gas supplies from Germany and other Western European countries.

Since 2021, there is a 60% reduction in the shipment of Russian gas to Europe. The International Monetary Fund predicts that, in Eastern Europe, the situation could be the most serious on the continent, with a GDP decrease of up to 6%.

The reduction in production in the manufacturing sectors in these economies would have ripple effects to other connected economic sectors and also political consequences.

“Across the continent, the population is generally more in favor of peace with Russia than doing justice towards Russia, which means that as the costs of war increase for European countries, cracks in European unity will start to appear. This could happen sooner or later, with the onset of winter,” warns Loomis.

The threat of winter

João Alcântara dos Santos, PhD in Geography and professor at the Centro Universitário Integrado de Campo Mourão, also highlights that the need to use heating in the European winter should open up even more the energy crisis and harm the industries.

“It is much cheaper for Europeans import gas from Russia through pipelines. This reduces the cost of energy for industrial activity and facilitates economic growth and job creation”, points out Santos. Gas produced by the United States or other countries (which serve as an alternative to Russian blackmail) must be transported by ship, which increases energy costs.

“This results in high inflation. energy is expensive, the cost of production will be higher and this will impact the European Union, with the risk of reducing industrial production”, warns Santos.

Samir Bazzi, professor of Financial Administration at UniCuritiba speaks of a destruction of heavy industry in Europe and its economic consequences. “The closings of large companies can bring long-term damage to Europe’s industrial base. And economists predict that the continent is about to enter a deep recession”, emphasizes Bazzi.

He highlights that energy represents about 26% of the costs of the metallurgical industry, 17% of the basic chemical production, 18% of glass manufacturing, 17% of paper production and % of a building materials industry. This rise in most factory costs forces companies to temporarily or permanently close their doors. The European Fertilizer Association, for example, reported that more than 70% of fertilizer production was closed or slowed down.

One of the The main outputs pointed out by specialists, and which has already been implemented in the Old Continent in recent months, is the exchange of fuels. The European Energy Agency predicts that this year there will be a 7% growth in the use of coal plants, for example.

Germany, the biggest dependent on Russian gas, had to rehabilitate plants of coal that had been closed within the country’s sustainability project. Other renewable sources could only meet the high demand for energy in the medium or long term.

For the next European winter, which starts in December, the continent has about half of what it usually needs in stock. of fuel to serve the population in a rigorous season (a consumption of about 2021 billion m 3 of gas in the EU).

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