Divergent perspectives of the EU and the US in the face of the energy crisis

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Photo Pexels The different macroeconomic situation in the US and the EU has many reasons today. The most important thing is the war in Ukraine. Europe suffers from the worst military conflict since World War II. However, high oil and gas prices are both an opportunity and a challenge, depending on which side of the ocean is being assessed. While the war in Ukraine poses a serious threat to the stability of the EU, it creates new opportunities for the US hydrocarbon industry. The perception of reality in the European Union is therefore different from that in the United States, which – economically, politically and energetically – are in a completely different situation.

What drives inflation

The Russian armed forces are unable to occupy Ukrainian territory except Donbas and the southern outskirts, and the Ukrainian offensive in September liberated 6,000 people. km of land occupied by Russia. Vladimir Putin responded with his most effective non-military weapon: cutting off the flow of natural gas to Europe. At the beginning of September, Gazprom announced the complete indefinite suspension of supplies by Nord Stream I, a gas pipeline which in 2021 was responsible for 40 percent. gas consumed in the EU (the Yamal gas pipeline running through Belarus was closed in May, and the war significantly reduced the supply of gas that runs through Ukraine). The highest levels of inflation since the 1970s can largely be attributed to the reduced supply of natural gas from Russia and the reduction in Russian and Ukrainian grain exports. In 2021, Ukraine produced 10 percent. world wheat, 13 percent. barley, 15 percent maize and 50 percent. sunflower oil. Fortunately, the August agreement allowing Ukrainian and Russian exports through the Black Sea has significantly eased tensions in the grain markets. Inflation is also the result of persistent bottlenecks in global chains of production and distribution of goods and services. These bottlenecks in turn are a consequence of the strong growth in demand resulting from the end of the COVID-19 restrictions and the shortage of intermediates such as semiconductors. The United States and the European Union are the world’s first and second largest economies, generating 26.8 and 18.3 percent respectively. world GDP and have a decisive influence on the international economy.

What’s happening in the US

The United States is fully employed. Unemployment rate – 3.5 percent has been the lowest since 1969. The number of job vacancies is 11 million, which means there are two vacancies for every worker. Wages between June 2021 and June 2022 increased by 5.3%. The national average per gallon of gasoline (3.8 liters) has fallen from a high of $ 5.02 a gallon in June to the current $ 3.7 in the past three months. This trend is due in part to the decline in global hydrocarbon demand, but it is also the result of US global leadership in oil and gas production. After reaching a record level of 9.1 percent. in June, annual inflation stood at 8.5% in July and was below 8% in August. Despite the improvement in the country’s economic situation, the Federal Reserve (FED) is expected to continue interest rate hikes due to strong pressure from the labor market. The slowdown of inflation in the US in August is to result from the fall in oil prices in the world markets. According to economists, the FED will continue its policy of tightening the belt until the rise in prices stops in all sectors of the economy. After a fall in GDP by 1.6 percent year on year. in the first and by 0.6 percent. in the second quarter, in the third quarter, an increase of 1.4 percent is forecast. Experts predict that the GDP growth rate of the American economy at the end of 2022 will amount to 1.6%. To sum up – the current situation in the United States is such that many Americans can afford to change their job offers, and the drops in fuel prices have stimulated people, e.g. by encouraging them to travel (only during the long weekend at the beginning of September, as much as one third of the US population – 137 million – went on a journey by car, train or plane).

Pessimistic sentiment in Europe

Meanwhile, in Europe, the economic reality is different. Eurostat announced that inflation in the EU rose year-on-year from 9.6%. in June to 9.8 percent. in July, and in the euro area by 8.6%. in June to 8.9 percent. in July and 9, 1 percent. in August. In some Baltic countries, inflation has already exceeded 20%. Compared with July 2021, energy prices increased by 40% in the euro area and food prices by 10%. The European Central Bank waited until July to raise rates, and on September 8 it had to raise them by 75 points. Fears of rising unemployment – especially among young people – dominate in EU societies. Pessimistic sentiment spread to Brussels as well. The European Commission expects the EU’s economic growth to be 2.7%, while a year ago it was estimated that real GDP growth in the EU would be 4%. After the summer boom, Europe is facing an almost complete cut-off in the supply of Russian natural gas. In a recent study, the International Monetary Fund estimated that a complete blackout would cut EU GDP growth by 1.8 points next year. The loss of GDP would be more than four points in Hungary and the Czech Republic, in Italy it would be 3.7 points and in Germany 2 points. By introducing sanctions, the Western coalition was not able to stop China, India, Brazil, Mexico, Turkey or Indonesia from maintaining trade with Russia. An attempt to limit world oil and natural gas prices will fail. Europe’s only reaction in the short term is to reopen nuclear power plants and use coal.

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