Not only do wars damage life and property but they also change narratives and economic policies. Historical accounts suggest that the energy sector becomes an epicentre of any war. It always gets more attention.
The Russia-Ukraine war made all energy transition efforts fruitless, at least in the short term. Oil and coal are back in discussion amongst commodity traders and politicians. Neither ‘E’ (environment) nor other components (social and governance) in ESG investing will remain the same hereafter. War and post-war sanctions have created an artificial scarcity of energy and food supply worldwide.
Europe decided to end reliance on the Russian energy sector in a phased manner. On the other hand, Russia stopped supplying natural gas to Europe within a few months of the war. Choosing an ethical side has pushed Europeans’ food and energy bills through the roof. Now, Russia might even cut the oil supply through its Druzhba pipeline as it did with the gas supply if the western sanctions continued. This fear has left many European countries, especially Germany, scrambling for oil supplies from different parts of the world.
The pressure on energy companies is increasing day by day and their financial position is not sustainable, where a few of them are on verge of collapse if not saved on time. This might result in more shortages at the time Europe approaches the winter season. Think tank Bruegel reported that European governments have earmarked around €500 billion to cushion citizens and companies from soaring gas and electricity prices. It said that EU governments have spent around €450 billion on nationalisation, bailouts and lending to the ailing energy sector.
In April 2022, the German government took control of Russian gas company Gazprom’s German subsidiary. In September 2022, it nationalised Rosneft’s subsidiary PCK, located in the Schwedt area. In the past week, it has nationalised a few other energy companies to ensure stable supply throughout the nation. In July 2022, the French government acquired the remaining 16% shareholding of the debt-laden electricity company, Électricité de France (EDF). Trades Union of Congress in the UK reported that the nationalisation of energy generation companies could help UK households save £4,400 over the next two years.
These pieces of news are important for people, governments and also future students studying economic history. Will this create a trend of nationalisation in capitalist Europe? Will it push public expenditure upwards? Will it lead to more centralisation of power within the government?
History can shed some light on this matter.
After the second world war ended, the UK experienced many instances of nationalisation and a rise in the welfare state. The then-ruling Labour Party nationalised many key industries including the Bank of England, fuel, power, inland transport, iron and steel, and coal. Similarly, France nationalised the coal and gas sectors in 1946. The nationalisation of around 1700 small energy producers, transporters and distributors resulted in the formation of EDF, where the government decreased its stake later. Along with electricity, it also nationalised Gaz de France (GDF), the main producer and supplier of natural gas. The communist government in Poland instituted large-scale nationalisation starting in 1944. Along with land, it also nationalised almost 35000 companies by 1948. Romania too had a similar nationalisation drive post-war.
However, US and Germany did not experience nationalisation. The US emerged as a superpower with abundant oil reserves under its control while Germany, under the leadership of Ludwig Erhard, removed price controls and reduced taxes taking a social market economy approach. Central planning became infamous in these countries.
Governments or political leaders, usually, resort to nationalisation either out of lust for power or economic desperation. An autocrat would want key industries under his control to ensure the fulfilment of his or her wishes while a communist would like to take over everything that is privately owned. An economic crisis and/or poor finances of a company could lead to state-led bailouts as seen during the 2008 financial crisis. Likewise, economic problems such as inflation, unemployment and food security would also result in governments centralising the power to deliver public goods and jobs.
There is a high probability that the nationalisation trend would aggravate going ahead. Governments want industries and households in Europe to reduce their energy consumption. European Commission President Ursula Von Der Leyen has blamed the free market mechanism in the energy sector, where the power companies registered windfall gains while consumers feel the brunt of high prices. She has advocated for public ownership of the energy sector.
Apart from the energy sector, food security issues have led to price controls in most countries. Though price controls appear politically correct in an inflationary environment, they have failed every time in the medium to long run. But there is always a wishful desire to implement such controls in these times. Price controls and nationalisation might gain more ground in the coming years, especially in Europe. Will they result in the outcomes that politicians or the general public would want? Prima facie, does not look like it. But, as the saying goes – ‘Never Say Never’, we could wait for a couple of years to pass judgement. Even though there are many unknown unknowns, the current crisis will certainly change narratives around our economic systems, especially regarding who owns the energy sector.
– Swapnil Karkare
Sources and Further References:
Germany takes over Rosneft subsidiary to secure fuel supplies, Politico
Russia: Schwedt Refinery, Economic Battlefield, Chinwa.Tech
Polish firm reportedly wants to take over Rosneft’s stake in German refinery, CNBC
Crude awakening: the German town on the front line of Russian sanctions, FT
List of Nationalisation by Country, Wikipedia
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