Europe’s energy crisis: Don’t buy from your enemy
By Trig Mabrey
web posted October 17, 2022
One of the basic principles of supply and demand is that when the supply curve contracts, price goes up. An excellent example of this is the US gas prices of the 1970s, which skyrocketed due to an OPEC embargo. Europe is experiencing a similar phenomenon, as prices for all forms of fossil fuels soar. In my own city, gasoline is going for 10€ a gallon, and heating prices have jumped tenfold over the past six months.
This is not the first time such a gas crisis has happened. Even since petroleum gained its current essential place in our economy it has been especially vulnerable due to its increased scarcity and widespread demand. Unlike other scarce but necessary goods, petroleum is very limited in its areas of production in certain deposits around the world. This has created a dependency on these oil producing nations by many larger states, powers such as China, Europe, Japan, India. Out of all the great powers, the only ones who are net exporters are the USA and Russia.
Just like the Japan learned in the 1940s, and the US learned in the 1970s, Europe has now discovered the great folly of giving your enemy control of the taps. Even since the fall of the Soviet Union, many nations in Europe have been utilizing the newly “democratic” and “free market” Russia as a cheap and easy source of fuel. However, this has granted Russia a significant playing card.
The main producer in Russia is the state-owned GAZPROM, and thus, Putin has control over the taps. After most of Europe sanctioned Russia in response to its invasion of Ukraine, the gas through the pipes started slowing. A combination of sanctions and Russian reciprocity has dramatically reduced European imports to extremely small levels, causing a run-on effect in gas prices. With the recent Nordstream 1 closure, there will be even less natural gas flowing into the EU, and other sources of supply have not been able to provide enough to meet the demand.
With this dramatic loss of supply, and reduction of the corresponding curve, the steady demand has led to rising prices, as much as four times 2021 levels for many areas. Unfortunately for Europe, the opportunity cost of going without heating in the winter is not something people are willing to endure, and thus the quantity demanded cannot fall with the price shift, causing shortages, especially as quantity demanded increases with the onset of cold.
There are a few possible solutions to this problem. The one currently considered by the EU is a cap on prices, but I am unable to find information on how this will work. Without some form of intervention, a price cap would be horrible for everyone, exacerbating the shortages and doing nothing to address rising demand. Other options include finding and alternative energy source, such as wind or nuclear, but Europe’s infrastructure is not optimized for this. The most likely solution is some alternate supplier, such as the Middle East or American LNG. However, this comes with associated costs, and could result in a permanent price jump.
In all, the current situation in Europe is a cautionary tale about the importance of supply. When a supply source does not lie under control of a state’s government, it will always be vulnerable to outside interference or manipulation. Long term economic security for Europe and other places depends on how they answer the question of “Who will do the producing?" 
Trig Mabrey is an AP Economics student in high school. (c) 2022 Trig Mabrey
