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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The West Is Suffering The Consequences Of Poor Energy Decisions

  • The EU has doubled down on becoming the world’s first net-zero region.
  • The West hasn’t done enough to secure crucial supply chains to provide raw materials for their energy transition plans.
  • Import dependency has made Western economies more vulnerable.

There has been an unspoken assumption that the West knows what it’s doing because it has been doing it longer than the East. Almost all developed economies are in Western Europe and North America. Yet recently, the tables have turned in one vital respect: energy policy. During the last few years, the EU has doubled down on its ambition to become the world’s first net-zero region. It has built up massive amounts of renewable energy, has slated huge investments in green hydrogen, and has been adopting policy after policy to discourage the consumption of fossil fuels.

In the U.S., the big push into renewables started two years ago as President Joe Biden took office. The transition from a fossil fuel-based economy to one based on and fueled by renewable energy was a central tenet in his campaign, and he got to work from day one, banning the Keystone XL pipeline from Canada and soon after temporarily banning oil and gas drilling on federal lands.

Meanwhile, far, far, away in the East, OPEC+ was formed to include two of the world’s largest oil producers—Russia and Saudi Arabia—as well as the Central Asian oil producers from the former Soviet Union, including Kazakhstan and Azerbaijan. The expanded cartel hasn’t always seen eye to eye, and just before the pandemic really blew up, the Russians and the Saudis engaged in a brief price war. Yet since then, OPEC+ has worked like a well-oiled machine.

The EU, the UK, and the United States have raced to install more wind turbines, more solar panels, and more storage, and carmakers, almost all based in either Europe or the U.S., have equally raced to commit tens of billions of dollars to the electrification of transport. Those races are both based on the Paris Agreement and the goal of reducing the rise in global average temperatures by 1.5 or 2 degrees Celsius from pre-industrial levels.

Related: JP Morgan: Commodities Could Surge By Another 40%
While the West has been busy with that, OPEC+, headed by Russia and Saudi Arabia, has been pumping as much oil as it has seen fit at any given moment. In addition to that, Russia has kept its metals and uranium industry going and has continued to forge closer ties with the Far East, with a focus on China. Saudi Arabia, meanwhile, has staked a claim in the mining world and has allocated tens of billions on renewable energy and smart tech investment.

What this means, basically, is while the West has enthusiastically focused on the final section of the energy supply chain—the wind turbines, the panels, and the EVs—the East, in the face of Russia and Saudi Arabia, has focused on the start and the middle of the process, on the raw materials without which no energy transition would be possible. While doing that, they have also continued what they have done for decades: supply the world, including transition-happy economies, with fossil fuels.

Right now, the West is discovering how important the raw materials part is for the energy industry as a whole. U.S. shale drillers cannot boost production as fast as the Biden administration would like because it has been plagued by shortages. The EU is struggling under a growing electricity cost burden because renewables have under-delivered while the EU has been trying to reduce its consumption of fossil fuels. Now, this consumption is on the rise, but it’s also a lot more expensive than it was because of the tight supply. Ironically, emissions are also on the rise. Related: Outlook For China Oil Demand Darkens

The Biden administration wants to bring in more Canadian oil into the U.S., but the Keystone XL pipeline that could’ve done that has been killed by that very same administration. The administration also wants more local critical mineral production but appears to not want the mines that would be necessary to do that. What it doesn’t want, apparently, is Russian oil and fuels amid the Ukraine war, but it will only suspend these imports beginning on April 22, so it can stock up before that.

In Europe, politicians have been equally active in punishing Russia for Ukraine with, so far, five rounds of sanctions that many have joked have hurt the EU more than they have hurt Russia. There is some truth in these jokes: EU energy prices have skyrocketed and stayed in the sky, industries are warning they might have to close if the EU sanctions Russian gas or if Russia decides to turn the tap off in retaliation, and people are beginning to protest.

Even so, Brussels officials are talking about oil and gas sanctions, and they just this week voted for a ban on Russian coal imports... to take effect in August. That last part is a sliver of common sense. Russia supplies 45 percent of Europe’s thermal coal, used for electricity and heat generation. The EU is now scrambling to find a replacement, while the world’s biggest coal exporter Indonesia is hiking its prices massively and Australia, another coal giant, is warning it will not have enough for Europe.

The West is beginning its painful awakening to one very simple fact. This fact is that whoever controls the raw materials controls everything. And if those who control the raw materials play their cards right, they are likely to remain in control while the consumers of these raw materials deepen their dependence on these external suppliers.

By Irina Slav for Oilprice.com

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Leave a comment
  • Suqi Madiqi on April 10 2022 said:
    Wow. Good article.
  • Lee James on April 10 2022 said:
    The concluding paragraph in this article is very sobering. If indeed, he who controls raw materials, controls everything, there will be pain for the West.

    The war of Putin on Ukraine is a test of Western resolve and clarity of purpose. Western citizens will essentially have to embrace that we are at war. If we have that understanding, maybe we can endure major inconvenience and higher costs.

    I have the feeling we are in for a disruption to our usual and it will cost. But that Putin decided to cause this does not surprise me.
  • DoRight Deikins on April 10 2022 said:
    And you didn't even mention the 'cost' of inflation!
  • Mamdouh Salameh on April 11 2022 said:
    The West is now in the know-it-all mood. That is why its policies are muddled and contradictory. Examples abound.

    The EU wants to become the world’s first net-zero region so it has been following hasty policies that have plunged it in its worst energy crisis in its history causing energy prices to skyrocket and even forcing it to reopen coal-fired electricity plans and above all making it more dependent on fossil fuels particularly Russian oil and gas supplies.

    The United States on the other hand wanted to reduce its imports from the Middle East and enhance its oil imports from Canada. Instead, the Biden administration banned Keystone XL pipeline from Canada.

    The IEA called last year for immediate halt to any new investments in oil and gas in order to achieve net-zero emissions by 2050. That call not only exerted some pressure on oil companies not to invest in new oil and gas projects but also to divest of its oil and gas assets. This has enhanced an already existing underinvestment causing prices to rise sky-high. The the IEA reversed its course in mid-stream calling on OPEC+ to raise its production beyond its agreed policies.

    And while the West has been persuing a muddled energy policy, OPEC+ has emerged as the world’s most influential player in the global oil market pumping as much oil as it has seen fit at any given moment. Its policies have enabled Saudi Arabia and Russia to exercise greater control and influence over prices and the market.

    By punishing Russia for the Ukraine conflict, the United States and the EU imposed five rounds of sanctions against it. The irony is that these sanctions are hurting the economies of those who imposed them far more than hurting the Russian economy. The reason is that rising energy prices benefit Russia, the world’s largest producer and exporter of oil and refined products while the West is paying through the nose for them. Moreover, Russia has the world’s largest energy market, China, open to it.

    Furthermore, the energy crisis that has been enveloping the EU long before the Ukraine conflict erupted has overwhelmingly shown the inadequacy of renewables to satisfy the EU’s electricity demand because of their intermittent nature.

    Oil and gas will continue to drive the global economy well into the future. Moreover, Russian oil and gas exports are irreplaceable now and for the foreseeable future. Therefore, the talk by the EU about reducing its dependence on Russia’s oil and gas exports is hot air.

    No one single oil or gas producer in the world or a group of producers can replace Russian crude oil and gas supplies to the EU now or for the foreseeable future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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