I’ve taken part in Counting the Cost on the Diesel crisis with Jorge Leon and Chris Aylett to discuss the implications of the diesel crisis for Europe in particular. Read the transcript of my comments below the video.
You’ve described this as the US basically weaponizing Europe’s dependency on the US. American refiners rely heavily on European buyers. Is this a fundamental shift in the great-power dynamics, or is it a relationship with normal strains that neither side can actually afford to unravel or decouple from?
The relationship between Europe and the US is extremely unbalanced, and that imbalance has worsened considerably since the war in Ukraine. Europe had developed a massive dependence on Russia, which it dismantled within just a few months, or even weeks, in 2022. It increased its reliance on other world regions, including the Middle East and the United States.
Europe also has a huge political dependence on the United States. That’s what we’re seeing play out at the moment, with the enormous pressure Donald Trump is exerting on European leaders.
This points to a much deeper strategic problem facing Europe. It lacks refining capacity and is facing major problems with its industrial model. As a result, it is weakened on all fronts.
What is extraordinary is that European leaders are not doing more to address the root causes of this energy crisis, which is the war in the Middle East. They have taken a very passive approach, barely criticizing the United States. It’s quite an extraordinary situation when you think about it.
US exports have been increasing over the past couple of months. At the same time, Donald Trump is under pressure to bring down diesel prices for American consumers ahead of the US midterm elections. How much of the US threats against Europe do you think are motivated by concerns about the midterms? Will this strategy be successful? Will Donald Trump be able to bring down diesel prices for American voters?
Those measures are effective, but only in the short term. That’s what reserves are designed for. They do not constitute a long-term strategy. The current situation is being driven by the war in the Middle East, the war in Ukraine, attacks on Russian infrastructure, and Russia’s response as it seeks to protect its energy security and maintain supplies.
These crises also share some common roots. There is no long-term solution through managing reserves or putting pressure on European countries. Such measures may be effective to some extent in the short term, but they do not change the overall equation.
Donald Trump appears increasingly desperate when it comes to managing the economic consequences of this war.He clearly understands that this war has been a disaster. This has been clear for several months. However, for reasons related to the paralysis of the American political system, he has been unable to put an end to it. He has even threatened to resume the attacks on a full scale after the elections, or even before, as some rumours currently suggest.
This is the core issue we are facing. The Middle East is not the only factor, although it plays a major role. The war in Ukraine also matters, and European leaders have taken an extraordinarily passive approach to these challenges.
As Jorge rightly pointed out, Europe has faced a strategic problem for years. It is extraordinary that, during such an extreme crisis, no further steps are being taken on the European side to ease the geopolitical situation.
Europe is drawing down on its strategic reserves. Winter is approaching, Europe will need more and more diesel, diesel prices are soaring, inflation is rising, and central banks are under pressure to raise interest rates. Would raising interest rates in response to a supply crisis that is also weakening economic growth be playing with fire?
This clearly has negative effects, and this inflation is not being generated by domestic economic activity. It amplifies the negative effects, especially for populations already facing a cost-of-living crisis.
Long-term interest rates are already rising very quickly. This is also affecting the economies exposed to the crisis.
Markets have already reacted dramatically, fundamentally changing the outlook for public debt and governments’ spending capacity. Companies are also feeling the effects of rising interest rates.
The crisis is already reverberating through the economy in many ways, particularly through inflation and interest rates.
This transcript has been automatically generated then edited for clarity.