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Abstract: The COVID-19 pandemic has had a profound impact on European energy markets, driving volatility, price surges, and heightened market integration, exacerbating investment challenges. Thus, this study evaluates the post-COVID-19 interconnected dynamics of the energy markets in Europe, focusing on energy return connectedness across 12 key European countries through static and dynamic Quantile Vector Autoregression (QVAR) and VAR models. The analysis revealed the substantial directional connectedness with Spain, Poland and Finland as the major transmitters of energy market shocks. Whereas, Sweden, France and Norway emerged as net receivers. They highlight the heterogeneous yet interdependent European energy markets, shaped by local energy policies, geopolitical uncertainties and market volatility. The study, through a detailed examination of mean and variance connectedness, reveals energy infrastructure vulnerabilities, in particular in highly interconnected markets, amplified shock transmission across crises. Based on the findings, the study suggested actionable policy recommendations, including strengthened cross-border energy infrastructure, greater renewable integration, targeted development of strategic energy storage, and EU-wide crisis management. By contributing to the energy market integration literature, this research offers important implications to the policymakers concerned with the improvement of energy security and stability in Europe's linked energy landscape.
Abstract: We assess the resilience and vulnerability of European industrial production to cyclical hydrocarbon-price shocks, geopolitical risks, and real effective exchange rates. Employing advanced analytical tools such as Panel VAR-GMM and Dynamic Common Correlation Effect (DCCE), we analyse monthly data from January 2000 to June 2023, encompassing 23 selected EU countries. Our findings reveal that European industrial production exhibits a degree of vulnerability to oil price shocks, particularly in the case of manufacturing production. Conversely, the industrial sector demonstrates resilience when faced with shocks in gas prices. Notably, industrial production responds adversely to geopolitical risks and escalations, with the impact being more pronounced in the presence of geopolitically induced hydrocarbon price shocks. Our country-specific analysis underscores significant variations in vulnerability and resilience across the examined nations. The implications of our study extend to the formulation of pertinent policy measures tailored to address the specific challenges identified in each context.
Abstract: In light of the energy crisis following the Russian invasion of Ukraine, policymakers postulated to lower fossil fuel consumption. Focusing on Europe, we analyze whether domestic energy consumption was reduced in the past because of increased geopolitical risk (GPR) in fossil fuel supplier countries. For this purpose, we adopt an aggregate GPR measure that combines information on GPR in supplier countries with rich bilateral trade data for oil, natural gas, and coal. We estimate the impact of GPR related to fossil fuel imports utilizing an instrumental variable approach and a growth-energy use model. Our results indicate that during the period 2000–2019, increased GPR in coal supplier countries entailed reductions in both coal and total energy consumption. Moreover, economic growth effects on fossil fuel consumption were partly reduced by risks related to coal and natural gas imports. Similarly, if mediated by a high domestic import dependency or government effectiveness, GPR partly lowered the consumption of coal and natural gas. Regarding the energy transition, we find indications of a partial shift from fossil fuels to renewable energy in response to GPR abroad. That is, concurrent to the partial reduction in fossil fuel consumption, GPR in coal supplier countries increased renewable energy consumption.
Abstract: The European clean energy sector sources approximately 98 % of its rare earth materials from China. We examine Chinese rare earth supply's effect on European renewable energy, particularly solar and wind sectors from 1990 to 2020. Using the gravity model, we find a positive correlation between China's rare earth supply and European solar energy during bullish markets. A similar response is seen in wind energy during bearish markets, considering global and China-specific geopolitical risks. We also observe a negative correlation between China's economic growth and mineral supply to Europe, with European income growth having no significant impact. Additionally, multiplicative economic growth negatively impacts Chinese mineral supply. The study also reveals a positive link between oil prices, rare earth export prices, geopolitical risks, and China's mineral exports. Distance negatively affects supply dynamics in the wind model but not in the solar model. However, the originality of this study lies in its examination of China's role as a rare earth supplier for Europe's clean energy transition, integrated into a gravity model. Significantly, this research provides potential trade insights and formulates an economic policy implication framework to guarantee a steady supply of China's rare earths for Europe's green deal objectives, while addressing the associated geopolitical risks.
Abstract: The shift of European countries to more environmentally friendly sources of energy is leading to an increase in the share of natural gas in the energy mix. At the same time, the flexibility and cost-effectiveness of maritime transport are making liquefied natural gas (LNG) more competitive compared to traditional forms of natural gas, despite recent geopolitical, health and economic events threatening its supply chain. The aim of this study is to analyze the European LNG import network using network theory indicators to identify trading communities in the network and to investigate the security of supply through network failure simulation. The network model was developed using a programming code in MATLAB R2022B software. The results of the analysis can be summarized as follows: (a) a shift in the center of gravity of LNG trade from the Mediterranean to the Atlantic shores was identified; (b) a gradual consolidation of Europe’s import network was noted; (c) an increasing dependence of Europe on a limited number of countries was observed; and (d) the most critical nodes for network resilience were identified through modeling. Based on these findings, recommendations are proposed to strengthen Europe’s energy security and independence.
Abstract: Since Russia's invasion of Ukraine, the EU-Russia gas interdependency has been shaken to the core. EU authorities have implemented a strategy to phase-out the gas dependency from Russia importing massive amounts of LNG. Main strategic goals have been to secure energy supplies at affordable prices, safeguarding the common market. However, results have been rather ambiguous, and the EU has been paying heavy costs, with the LNG diversification strategy countering core values and principles shaping the EU energy policymaking. Drawing on the Baldwin notion of power as a relational and multidimensional concept and the taxonomy of power developed by Barnett and Duvall, the article challenges traditional conceptualisations of power, providing a nuanced theoretical approach to the study of energy interdependencies and an innovative understanding of the nexus between international relations and energy studies. The research delves into the intended and unintended consequences of power dynamics in the EU-Russia gas interdependence, as much as the nature of the EU power at each stage of the complex gas independence with Russia. The paper focuses on the EU ability to wean off its Russian gas dependence while preserving informal institutions shaping the identity of its energy policymaking. The investigation shows the powerlessness of the EU and the distance existing between intended and actual outcomes of the LNG strategy, with some major implications for the same EU-Russia relationship. Against the background of emerging LNG interdependencies and a rising global energy order, the article presents policy recommendations to reduce the gap between expected and actual policy outcomes.
Abstract: The objective of this paper is to demonstrate the structural characteristics of the European gas supply system and changes in its network structure and the interaction and clustering among its nodes defined as countries, following the outbreak of the Russia–Ukraine conflict. The methodology relies on social network analysis, which employs mathematics of the graph theory to examine the state and dynamics of the given network structure. The impacts identified involve the reduced reliance of the system on Russian gas, a considerable reduction in the strength centrality of Russia and Germany, and a higher dispersion of gas flows, largely due to the increased import of LNG flows. After the conflict outbreak, countries such as Italy, Austria, the Slovak Republic, and Hungary retained their high influential position, in terms of the PageRank centrality, while the Balkan countries, together with the Middle East gas suppliers (Turkey and Iran), formed a common group with Russia. The estimated changes stress the challenges posed to the EU countries to enhance connectivity infrastructure investments and explore alternative ways of gas supply to support the objectives of strategic autonomy, while promoting resilience and the path toward a carbon-free transition.
Abstract: Aligned with the war in Ukraine, Russia has significantly withheld natural gas exports to Europe since 2021. As there are no EU-wide sanctions on imports of Russian natural gas, the Ukraine transit as well as imports via Turkey and LNG have remained active during 2022–24. However, the Russian-Ukrainian transit agreement expires at the end of 2024 and discussions about new sanctions on natural gas as well as the threat of further supply disruptions continue to pose uncertainty for European markets. We use the Global Gas Model (GGM) to investigate the necessity of Russian gas exports for European gas consumption. Our results of different scenarios indicate that the EU’s gas consumption can be largely satisfied in all demand and Russian supply scenarios. This result holds also for a complete disruption of Russian exports to the EU thanks to diversification and some demand side response.
Abstract: The relationship between global supply chains and energy security is critical in a volatile geopolitical landscape. In addition to increasing economic affluence, globalization has created vulnerabilities that are exacerbated by supply disruptions and geopolitical conflicts. However, the existing literature does not adequately examine the time and frequency relationship between global supply chains and energy security in the context of geopolitical risks. This study unveils the correlation between the global supply chain and energy security in the presence of geopolitical risks using wavelet analysis. The findings of wavelet coherency reveal a correlation between the global supply chain and energy security. The phase difference results indicate that the global supply chain leads to energy security in the medium run. The direction of the correlation reverses when energy security starts to lead the global supply chain in the short to medium term, coinciding with geopolitical events. However, the correlation has become more pronounced in the absence of geopolitical risks, demonstrating an increasingly close interaction between the global supply chain and energy security in the medium to long run. Therefore, reducing volatility spillovers requires cooperation in energy logistics policy.
Abstract: The role of fossil fuel consumption subsidies in exacerbating environmental and geopolitical risks has gained increasing attention in energy policy discourse. By artificially lowering fossil fuel prices, these subsidies encourage excessive consumption, delay the transition to cleaner energy sources, and create market distortions that heighten geopolitical uncertainties. Additionally, energy imbalances—where domestic consumption surpasses production—further amplify energy security risks, particularly in geopolitically sensitive regions reliant on energy imports. This study empirically examines the relationship between fossil fuel consumption subsidies, energy balances, and geopolitical risk in countries associated with high geopolitical instability from 2010 to 2023. Using Arellano–Bond dynamic panel estimation, the findings indicate that fossil fuel subsidies, energy balances, the use of revenue by the oil and gas industry, and renewable energy consumption exhibit a negative association with the geopolitical risk index in the long run. These results highlight policymakers' need to phase out fossil fuel subsidies, promote investments in clean energy, and enhance energy diversification to mitigate geopolitical vulnerabilities. Strengthening domestic energy production, fostering regional cooperation, and strategically redirecting oil and gas revenues toward sustainable initiatives can bolster energy security and contribute to geopolitical stability. Important policy recommendations and future research directions are discussed.
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