Energy at a reasonable price is the driver of any country’s economy. Cheap and plentiful energy has created the world we live in. To believe otherwise is just plain insane. The war in Iran has disrupted some sources of cheap energy. Some 20% of the world’s supply of hydrocarbons passes through the Straits of Hormuz. That has been effectively closed for the last month. How has this affected the EU and the UK?
To fully understand the effects, one has to look at what these people have done over the last decade or two. They stopped their oil and gas exploration. They chose to chase ‘net zero’ academic theories. They closed their refining operations. They took apart their coal-fired electricity plants. They disassembled their nuclear power capabilities. Then, the absolute cherry on the proverbial cake, they voted to stop purchasing oil and gas from Russia. This came after the Nord Stream pipeline was blown up.
The political leadership in the EU seemed incapable of looking forward and identifying the vulnerabilities that they were introducing to everyday life in the EU. As one wag has noted, they are now in the Find Out stage of their FAFO activity.
Sundance notes:
Gasoline prices have skyrocketed. The last shipments of jet fuel have arrived. Major airline carriers are cancelling flights due to lack of fuel. Faster than the EU can organize meetings to discuss their position, EU destined LNG shipments have diverted to southeast Asia and India as the ASEAN nations bid higher purchase prices for the vessels literally on the water.
Politico has an interesting article. It outlines the risks facing the European economy if the flow of energy continues to be obstructed in the Straits of Hormuz.
“Germany’s Friedrich Merz warns the economic fallout from the war in Iran is on track to rival that of the Covid pandemic or the Russian invasion of Ukraine.
[…] With the war in Iran threatening to choke off energy flows for the foreseeable future, Europe is facing a supply shock that promises to cripple manufacturing, ground airlines, hike up the price of food, spike borrowing costs and send inflation spiraling back to crisis levels.
As the last tankers carrying fossil fuels from the Persian Gulf pull into European ports, the scale of what is about to hit seems to be dawning on the continent’s leaders.
reality of this war and its consequences 24 hours a day,” Italian Defense Minister Guido Crosetto told the La Repubblica newspaper. “I’m forced to know things that don’t let me sleep.” The conflict could last “years,” Christine Lagarde, the president of the European Central Bank, warned in an interview with the Economist last week. The long-term effects, she added, are “probably beyond what we can imagine at the moment.”
[…] “Markets are now grappling with a scenario long discussed in theory but rarely thought of as a legitimate possibility — the effective shutdown of the world’s most critical energy chokepoint,” said Ana Maria Jaller-Makarewicz, lead energy analyst for the Europe team at the Institute for Energy Economics and Financial Analysis.
One immediate worry is that Asian countries, which before the war relied on the Gulf for some 80 percent of their gas and oil, are beginning to bid up the price of those products as they fight over dwindling supplies. That has diverted merchants with more flexible contracts toward Asia to exploit the higher profit margins, turning them away from Europe.
According to Charles Costerousse, a senior energy analyst at maritime consultancy Kpler, 11 U.S.- and Nigerian-flagged LNG tankers have been redirected from Europe to further east in the past few days. Within the next few days, the last tanker bearing Qatari LNG will arrive in Europe, he said.
There are major international companies that have already made the decision to move their operations out of Europe. The costs of doing business there were too high before this crisis. I would expect that more companies will follow. This will continue to have a spiraling downward effect on the EU’s economy.
The EU does not ever admit that it has erred in the policy proposals that are causing this problem. They are beholden to the communists among them and only seek to remain in “power”. They are Shiite-scared of their resident Muslim terrorists and turn a blind eye to the savagery of these invaders. As a result, the EU can’t move to secure their fuel supplies that Iran is currently holding hostage. And Trump has told them to go get their own oil.
Where does this all end? As has been noted before, there is a major re-structuring of alliances around the world going on. I believe we are witnessing the end of British domination of financial markets as well as the shuttering of a not insignificant portion of economic activity in the EU.
As the energy screws are further tightened, the generous welfare state that is the EU is going to buckle. The native citizens may agree to tighten belts whilst keeping a stiff upper lip, but the freeloading new “neighbors”? Not so much I think.