Energy dependence and geopolitical risks

Europe is dependent on the rest of the world for its energy supply

In 2023, the European Union’s primary energy consumption will be split as follows: around 40% oil, 20% fossil gas, 10% coal, 10% uranium, 5% solar and wind power; the remainder being made up of wood, biofuels and hydroelectricity.²

Not all of these energies are available in Europe.

90% to 95% of the fossil oil and gas consumed in the EU is imported. Only production in the Netherlands, Denmark and Romania remains significant, but in decline. As oil is liquid and therefore easily stored and transported, the market is globalized and rather fragmented. The top 3 suppliers (USA, Norway and Kazakhstan) account for only 40% of supply. ³

By contrast, the gas market has historically been more regional, with overland pipelines from Norway, Russia and Algeria. The war in Ukraine led to the closure of Russia’s main land routes 4 which accelerated the penetration of liquefied natural gas (LNG) by sea. By 2024, 4 countries accounted for 80% of European supplies: Norway, the United States, Russia and Algeria. ³

Coal, on the other hand, has historically been a locally exploited resource. The main deposits were exhausted in the second half of the ^20th century, following the first two industrial revolutions. Poland, Germany and a few Eastern European countries are exceptions. As a result, coal now accounts for a minority share of the energy mix, with only 40% imported. ³

Uranium, whether natural or enriched, is 65% imported. No mines are exploited in Europe, and enrichment capacities are heterogeneous, with reactors in Eastern Europe (of Soviet design) still heavily dependent on their Russian neighbor. ⁷

Finally, photovoltaic solar panels and wind turbines are the product of two radically different industrial realities. On the one hand, over 95% of solar panels are imported, almost exclusively from China. On the other, the European Union manufactures more wind turbines than it installs on its territory, and thus generates trade surpluses via its exports.

In short, the European Union imports over 70% of the energy it consumes.

Not all energies are equal when it comes to energy independence

Fossil fuels (coal, oil, natural gas) and nuclear energy are stock energies. Once the fuel is consumed, it has to be replenished.

For fossil fuels, Europe has strategic stocks equivalent to a few months of current consumption. ⁸ As a result, supply is virtually just-in-time.
For nuclear power, uranium’s high energy density (one kg of natural uranium contains 10,000 times more energy than one kg of coal) means that it can be used to produce electricity. ⁹ ) makes it easy to store the equivalent of several years’ electricity production. ¹⁰ Dependence is therefore reduced.

As for renewable energies, these are flow energies. Once a wind turbine or solar panel has been installed, the device produces for decades, capturing the flow of energy (wind or sun). As with nuclear power (see box), the “statistical convention” is to consider that renewable production is 100% domestic. Even if China stops supplying solar panels, Europe will be able to continue producing with existing panels, at least for a while. ¹¹

In other words, a country’s energy dependency ratio can be calculated by assessing the weight of net fossil fuel imports (imports – exports) on the country’s total energy consumption.
Russia and the USA have a dependency rate of 0%, as they export more energy than they import. By contrast, Europe is at 58%, Germany 67%, France 51%, India 35% and China 20%. ¹²

These figures therefore reflect a greater or lesser dependence on fossil fuel imports in relation to the country’s primary energy consumption.

Finally, it should be noted that in Europe, these energy dependency rates have stagnated on average for over 20 years. ¹⁶ The boom in solar and wind power renewables (now accounting for 5% of the energy mix) has been offset by the decline in domestic fossil fuel and nuclear energy production.

Energy dependence accentuated by geopolitical risks

This notion of energy dependence is nevertheless insufficient to assess the geopolitical risk associated with energy supply. It says nothing about the reliability of supplier countries. Importing oil from Norway or Russia does not entail the same risk. What’s more, this approach is binary and overly simplistic: importing fossil fuels is considered a 100% dependency, whereas importing uranium or solar panels generates no dependency at all.

For a better understanding of this geopolitical risk, the following 3 key factors should be assessed:

• Hazard : the probability that the relationship with a third country will deteriorate.
• Exposure : the proportion of energy consumption exposed to supplies from a third country.
• Vulnerability : the severity of the impact if the hazard occurs.

Hazard: the reliability of supplier countries

The Democracy index ¹⁷ assesses the state of democracy in countries around the world. Scandinavian countries are considered full-fledged democracies (score of 9 to 10), France and Poland imperfect democracies (score of 7 to 8), Turkey and Mexico hybrid regimes (score of 4 to 6), China and Russia authoritarian regimes (score of 1 to 3).

The state of a country’s democracy does not, strictly speaking, correspond to its reliability in honoring its energy supply commitments, but it does give an idea of a regime’s stability in geopolitical terms. For example, Russia’s unleashing of the war in Ukraine proved it to be an unreliable partner. In 2024, the military junta in power in Niger nationalized the subsidiary of French uranium multinational Orano. ¹⁸ As a result, uranium imports from this country have ceased altogether. Since Trump’s re-election at the end of 2024, the USA’s score is likely to deteriorate over the next few years.

Exhibition: the weight of imports in consumption

Exposure is assessed by the weight of net imports (imports – exports) in energy consumption. This weight is then distributed among all suppliers. For example, net oil imports account for 95% of European consumption. Since the United States accounts for 15% of these imports, Europe’s exposure to the American giant is therefore 14% (15%*95%) of its oil consumption.

For stock energies (fossil fuels and uranium), 1 kWh of energy imported in year N is assumed to be consumed in the same year. ¹⁹ As strategic stocks do not increase significantly, there is a communicating effect between incoming and outgoing flows. In addition, solar panels imported in year N are considered to have been installed in the same year, so the exposure relates solely to their production in year N.

This exercise is simplified by considering exposure to the energy mix of year N. Accounting for energy volumes associated with imports, projected over several years, would give a better picture of exposure to supply risk over this period.

Vulnerability: the consequences of a supply disruption

If all deliveries of fossil fuels, uranium or photovoltaic panels stopped overnight, what impact would this have on our energy consumption?

For fossil fuels, consumption can be maintained at the same level for 3-4 months, thanks in particular to strategic stocks. A few months is not much. The war in Ukraine has given us a glimpse of the consequences, affecting only Russian supplies: higher prices, factory closures, less heating for some households.

The nuclear industry’s capacity to withstand an identical shock is 12 times greater, since stocks of uranium (natural, enriched and depleted) mean that Europe can produce at the same level for around 3-4 years.

No longer being supplied with solar photovoltaic panels has a direct impact on the current year’s installations. There are stocks linked to distributors’ strategies, probably of the order of 6 months. ²⁰ to cushion the impact.

In this exercise, vulnerability is defined over a 4-year timeframe, in line with the current duration of the war in Ukraine:

The vulnerability of domestic production capacity is not assessed. There are, of course, critical imported components required for this production. For example, the permanent magnets used in the manufacture of offshore wind turbines.

One third of European energy consumption is exposed to high geopolitical risk

Combining the 3 factors above, the geopolitical risk to energy supply is more nuanced than the dependency ratio alone.

Energy bill weighs on trade deficit

Energy dependence and geopolitical risk go hand in hand. Dependence translates into an energy bill that fluctuates according to market prices, a country’s economic development or its energy independence strategy. Geopolitical risk, on the other hand, measures the probability of the occurrence of a crisis that will exacerbate this dependence, and potentially jeopardize our sovereignty. As in the case of the outbreak of war in Ukraine in 2022, or the oil shocks of the 1970s, when energy bills skyrocketed.

Fossil fuels less “profitable” than uranium and solar power in terms of balance of trade

In 2023, the European Union imported over 350 billion euros worth of energy products. It is interesting to compare these amounts with the quantity of associated energy. ²¹

This “cost” should be treated with caution. ²² This is the cost of imports alone. To this must be added local costs (e.g. construction and operation of power plants) to obtain the total cost, which has a very different classification. The concept remains interesting from a macroeconomic point of view, as local costs are also revenues: local wages feed the national economy.

Fossil fuels make a relatively small contribution to local value added: less than 50% of their total costs (national transport and distribution, boiler installation and maintenance), compared with 70% for solar panels (the panel alone represents only 30% of the total cost, the rest being mainly installation and ancillary equipment), and 90% for nuclear power (uranium represents only 10% of the total cost).

France’s energy bill weighs 4 times more than the budget of the Ministry of Ecological Transition

Since 2005, France’s energy bill has averaged 60 billion euros a year. This is the “cost” of our dependence. During the energy crisis triggered by the outbreak of war in Ukraine in 2022, the bill soared to over 120 billion euros, more than double the previous year’s figure. This is the additional “cost” of our exposure to geopolitical risk. We have to go back to the oil shocks of 1973 and 1979 to observe comparable situations.

60 billion euros is :

• the combined budget of the Ministries of the Interior and Higher Education and Research;
• 4 times more than the budget of the Ministry of Ecological Transition ²³ the ministry that is supposed to free us from this energy bill

So much money leaving the country when it could be funding national economic resilience.

How does energy dependence impact purchasing power?

In 2023, the direct purchase of energy (fuel and accommodation) represented over €3,500 incl. tax. ²⁴ per year and per household, or almost three net monthly earnings. ²⁵ Since the early 2000s, this energy bill has been rising proportionally faster than the prices of all goods and services.

This is problematic, as this energy purchase is part of constrained expenses (e.g. housing, food, transport). ²⁶ Indeed, the majority of households depend on the car to go to work, do their shopping or drop their children off at school. As housing is poorly insulated, more than two-thirds of the energy consumed at home is for heating. ²⁷ In other words, when the price of energy rises, households, if they can, have to arbitrate between compressible expenses such as leisure activities and expenses that are difficult to compress, such as less heating or less travel.

In 2018, this tension over automotive fuel prices contributed to the emergence of the Yellow Vests movement, putting millions of French people on the streets.

In 2022, at the time of the explosion in energy prices linked to the war in Ukraine, over 80% of French people wanted to reduce their energy consumption to lighten their bills, but the majority (~60%) said they were unable to do more.²⁸

One year on, 8 out of 10 households say they have reduced their heating during the winter. ²⁹ This energy sobriety, motivated by economic reasons, is then largely undergone. 26% of households suffered from the cold at home during the winter of 2023-2024, compared with just 14% in 2020. ³⁰

As households face rising energy bills, companies are also passing on the cost of their products and services. In 2022 and 2023, they contributed to inflation, which reached 5% to 6% in France. ³¹

This energy dependence not only weighs on household purchasing power, but above all it weakens the most vulnerable, who can no longer afford to heat their homes or get around.

Our dependence on fossil fuels puts us at the mercy of authoritarian regimes

Energy dependence and geopolitical risk are two sides of the same coin. Dependence on fossil fuels means dependence on authoritarian regimes: Russia, Kazakhstan, Saudi Arabia, Algeria, China and even the United States under Trump. In other words, the European Union is exposing its economy to potentially destructive geopolitical hazards that threaten its sovereignty. Reducing dependence on fossil fuels also means combating climate change.

Europe has its destiny in its own hands. The recipe is well known: consume less energy (e.g. train, bicycle, building insulation, heat pumps) and produce it at home in an environmentally virtuous way (e.g. geothermal, wind, nuclear, solar). This creates local jobs and helps stabilize or even improve purchasing power.

But gaining resilience isn’t just about energy. Strengthening our independence applies to all essential needs: food, medicine, clothing, etc.