Europe’s Energy Crisis: Can Venezuelan oil turn down the global heat?

Image Source: Political Economy Journal

Across western Europe, there are signs of a “Heat Apocalypse”, as put by French authorities. Europe is suffering from a shortage of fossil fuels, especially Coal and gas. Post pandemic, the demand has shot up sky high, and the supply did not match. The temperature in the U.K. has reached 40◦ C, breaking all-time temperature records. The Russian-Ukraine war has made things worse. The war has triggered chaos in the global energy market, severe western sanctions has led to a spike in fuel prices, and Europe’s over-reliance on Russian oil has exposed the country to the energy crisis. 

The politics over Nord stream 2 is proving to be useless. 

What is Nord Stream? Nord Stream 1 and Nord Stream 2 are two gas pipelines connecting Russia and Europe. The U.S. has put some sanctions on Nord Stream 2, but America’s strategy is failing miserably; Russia is playing along with the U.S. actions. Furthermore, the U.S. is aiding Ukraine with more weapons and artillery. The NATO’s expansion is further creating threat perceptions for Putin. Putin has cut its gas supplies through Nord Stream 1 as well. So, there are no signs of withdrawals from either side. 

Harsh winter awaiting amid energy crises.

Although the U.K. is far less reliant on Russian gas, the price will shoot up if the supply drops in mainland Europe. The governments in Europe are alerting its people of the possibility of a gas shortage in the coming winter. 

The gas supply through the Nord Stream 1 pipeline, one of the Europe’s most significant gas infrastructures, has been suspended, claiming it to be a pre-scheduled 10-day maintenance. However, Europe fears that the suspension can be extended. Also, the State majority-owned Russian gas company, Gazprom, claims that it cannot fulfil all of its gas contracts with the bloc. 

The European Commission on July, 19th presented a plan on how to prepare for winters when the energy needs would be much higher. All the European countries have been asked to curb their energy consumption by 15% between Aug. 1, 2022, and Mar. 31, 2023. The worst situation, as predicted by the E.U. is that Russia may completely shut down its supplies to Europe. 

Alternatives to Russian energy.

Europe’s 40% of the energy needs are met by Russia. Considering the worst-case scenario, Europe needs to have a backup plan. All the E.U. countries are looking for alternatives, not just for now but also in future. The bloc wants to reduce its dependence on Russian oil and gas. 

The U.S. has claimed to supply 15 billion cubic meters of LNG to European Union this year. However, to lay it on the line, the U.S. is already producing at full capacity. So, any additional gas sent to Europe from the U.S. would come from redirecting its exports from elsewhere, nullifying the price impact. 

A deal has been signed recently to double imports from Azerbaijan by 2026. The country is looking forward to increasing its production capacity. The total imports today stand at around 8 billion cubic meters, and the target is to reach 16 billion by the end of 2026. 

Another energy deal was signed between France and UAE. The UAE has agreed to increase its fuel supply and invest more in renewable energy. 

The world’s major oil exporters are working to raise their production slightly to help ease soaring prices. We all know this is not enough, so what could be the other options? OPEC plus? It is not planning to increase production any time soon.

Venezuelan oil to debt swap! Possible solution?

Well, there is one country with one of the largest oil reserves in the world but is not exporting oil to other countries. Venezuela has proven reserves of over 304 billion barrels. That is 17.5% of the global oil reserves. However, oil production and the development of these huge reserves have taken a backseat. The country was producing 3 million barrels per day before the sanctions were levied against the country and domestic corruption and politics eroded production. 

What are these sanctions, and what is the economic and political situation of Venezuela that led to the crisis is a story for another day. 

Today, if the U.S. lifts sanctions on Venezuelan oil and the production reaches to pre-sanction levels, there might be some relief to the global energy market. Also, it will allow Venezuela to start fresh and build new relationships. The country’s debt stands at 365% of its GDP. It will be a good chance for Venezuela to swap its oil for the debt and reduce its debt burden. But again, it all depends on the U.S. lifting sanctions and the country’s political situation. 

It was a lesson Europe learnt the hard way. Europe might have to suffer from energy shortage this winter. This inevitably begs the question, just how far is the west willing to go? Will it lift the sanctions to help its allies overcome this crisis? or will it find an alternate solution? Whatever it is, it needs to be done fast because even if there is no energy shortage in the U.S., soaring energy prices is hurting it’s economy as well.