There is no doubt that energy supply security has been the most important matter for European countries since Russia’s invasion of Ukraine. While the economic sanctions war that started between European countries and Russia drove European countries to resort to financial measures, energy, particularly natural gas, has been Russia’s most critical and strategic tool.
European countries’ high dependency on Russia in recent years strengthened Russia politically, as well as economically – due to increasing natural gas prices. Every European country had no choice but to buy natural gas from Russia, even in the war atmosphere - and at expensive prices, too.
Russia went to the extent of stopping natural gas transports to Poland, Bulgaria, Finland, the Netherlands, and some European companies that would not make natural gas payments in Rubles, which would further alleviate the effect of sanctions.
In fact, Russia had reduced natural gas transport to Germany, its biggest natural gas buyer, for the repair of the Nord Stream 1 pipeline, claiming that equipment repairs became difficult due to sanctions.
MOUNTING STRESS AS WINTER LOOMS
The natural gas issue is at the heart of the conflict between Europe and Russia. Therefore, as the winter months approach, Europe’s top agenda is the measures that need to be taken to prevent an energy crisis.
Meanwhile, European countries are busy filling their limited natural gas stores from various source countries for any likely natural gas shortages, while they are also striving to minimize energy consumption through savings and blackouts.
Though the measures taken by every country vary, it is clear that measures aimed at reducing energy consumption will have a negative impact on living standards, production, and many other fields and segments.
ENERGY CONSUMPTION, PRODUCTION CORRELATION
The most important factor that will be adversely affected by the measures aimed at reducing energy consumption, and energy savings measures is the country’s production. Central banks already have a decision to hike interest rates due to increasing inflation. While these interest hikes trigger stagnation in the economy, there is no doubt that the measures taken to reduce energy consumption will have greater consequences on economic growth and, as a result, on the gross domestic product (GDP).
Additionally, energy literature includes the following findings between energy consumption and GDP:
As the GDP is high, especially in developed countries, it means high income per person. Hence, the high level of living standards in developed countries signifies greater energy consumption in these countries.
Therefore, a decline in GDP due to economic stagnation leads to lower energy consumption, which thus leads to lower GDP, and lower income per person.
Most importantly, excessive energy prices will cause disturbance in society due to high prices, with many sectors dependent on high energy consumption having to close down, and hence having significant adverse impacts on employment.
Lastly, since the energy issue is so critical, taking measures that will ensure medium-term and long-term energy supply security has become vital.