Energy Challenges and Impacts on the European Economy

Currently, Europe is facing significant energy challenges due to Russian sanctions, the ongoing energy transition, and slowing economic growth. These sanctions have restricted access to Russian oil and gas, reducing overall energy supply and driving up prices. According to World Bank Commodities Price Data, crude oil prices surged from $72.3 per barrel in December 2024 to $78.2 per barrel in January 2025. Natural gas prices also continued to rise, reaching $15.34 per mmbtu in February 2025, up from $13.86 in December 2024. These price increases have fueled inflation, reducing consumer purchasing power and slowing economic growth across Europe.

Supply chain disruptions further worsen the situation. High energy costs make transportation and manufacturing more expensive, leading to delays, operational downtimes, and increased costs for energy-intensive industries. As a result, Europe’s industrial competitiveness is declining, putting pressure on its businesses and economies.

While some European countries are heavily investing in renewable energy, others remain dependent on fossil fuels. Furthermore, renewables like wind and solar still cannot fully replace fossil fuels, resulting in short-term energy gaps. Therefore, governments should step up to manage this transition and mitigate these challenges.

According to the global comparison of energy investment levels (Figure 1), while the European Union invests more in energy infrastructure than regions like Latin America, Southeast Asia, and Africa, its investment levels lag behind those of China and the United States. This highlights the need for greater investment in solar, wind, and bioenergy to reduce dependence on imported fossil fuels.

To balance economic stability and energy security, Europe must focus on increasing renewable energy investment; diversifying energy sources by boosting domestic gas production; securing alternative imports from the Middle East, Africa, and the US; and enhancing government support through subsidies and financial incentives for electric vehicles, heat pumps, and energy-efficient technologies. Additionally, improving energy efficiency in industries and households and implementing short-term energy stability measures, including temporary reliance on fossil fuels, will be essential.

Europe’s shift to renewable energy is inevitable, but it must be carefully managed to avoid economic disruptions. While the long-term goal is a sustainable energy system, short-term strategies like energy diversification, efficiency improvements, and temporary fossil fuel use will be necessary to maintain economic stability and energy security.