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For the first time in six years, the European Union (EU) has overtaken Asia as the biggest buyer of US crude oil, Bloomberg reported. The EU imported 213.1 million barrels US crude over the first five months of the year, while Asia imported 191.1 million barrels, new US Census Bureau data showed.
This drastic change in global energy flows is widely seen by observers as a result of the Russia-Ukraine conflict and the intensifying sanctions from the Western countries on Russia, one of the world’s most important energy exporters.
Since the outbreak of the Russia-Ukraine conflict in February, the US and other Western countries has successively imposed intensive sanctions on Russia, involving finance, energy, technology and many other aspects. Despite strong opposition voices within the bloc, on June 3, the EU adopted a sixth package of sanctions, including a partial embargo on Russian oil. The US is busy lobbying more countries to jointly put a price cap on Russian oil exports. These moves have worsened a supply shortage in global market and pushed up the energy prices.
Given its heavy dependence on energy imports from Russia, the EU is bearing the brunt of the current difficult situation in global energy market. According to the BBC, under varied pressures created by the energy crisis, Germany and other leading countries advocating global environmental protection have to reactivate the abandoned coal power projects. Since June, gas operators in Germany, France, Italy and other Western European countries have said that their planned supply of gas from Russia has fallen sharply, which may cause supply gap in winter.
Worse, in addition to the energy crisis, the biggest threat to the EU economy that is not likely to be resolved in short term, Europe is also facing high inflationary pressures and the risk of economic recession. Annual inflation in the euro zone’s 19 countries reportedly hit 8.6 percent in June, surging past the 8.1 percent recorded in May. In the context of rising energy prices, the European Commission predicts that the inflation rate in the euro zone will hit a record high this year. Meanwhile, Europe’s GDP growth is expected to be just 2.6 percent; the growth outlook for 2023 is even much bleaker.
Increasing energy imports from the US may be a short-term solution for EU’s energy crisis, but analysts said that US oil might not be enough to fill the gap left by Russian oil once the EU embargo on the latter takes effect later this year, as the US production of crude is not growing fast enough to respond to demand in the EU. Moreover, the current increase in European energy imports from the US is more of a forced move. While energy supply shortages and rising prices can be alleviated in the short term, it is not expected to fundamentally solve the underlying problem.
For a long time, due to high energy prices in the US, its competitiveness in the international market has actually been weak. The increase in European energy imports from the US is actually a supply chain change that benefits the US. But for Europe, what needs to be seen is that once it builds up the facilities to support long-term import growth from the US, this will increase the cost of energy imports in Europe, which could lead to Europe’s temporary energy supply woes becoming a long-term source of inflationary pressures.
