The European Union's industrial economy is facing a critical juncture as surging oil and gas prices disrupt the production of basic chemicals, which are essential for everything from food and painkillers to cars and building materials. This crisis is not just about the economics of production; it's a strategic vulnerability that mirrors the challenges faced by Germany during World War I. The EU's decades-long reliance on easy access to global resources has left it exposed, and the recent disruptions in the Strait of Hormuz have only exacerbated this issue.
One of the key challenges is the production of basic chemicals like ethylene and propylene, which are crucial for plastics. These chemicals are becoming increasingly uncompetitive to produce in Europe due to the halt in shipping through the Strait of Hormuz, which has disrupted oil and natural gas markets. This is particularly concerning for Germany, which has a legacy of investments in chemical production, such as SKW Stickstoffwerke Piesteritz GmbH, a company that has had to temporarily shut down production due to the volatility of gas prices.
The impact of these price increases is far-reaching. German chemical giant BASF SE has hiked prices for detergents by 30%, while Evonik Industries AG has announced higher rates for compounds used in feed for cattle and chickens. This, in turn, filters through to the cost of living, affecting everyday products. The situation is further complicated by the fact that Europe's reliance on imports of liquefied natural gas often makes the fuel two to three times more expensive than in the US, with China falling in between.
The EU and its member states are aware of the risks, but the response is bogged down by national interests. The Critical Chemicals Alliance, launched to identify compounds and sites crucial to the region's resilience, is contentious as it effectively picks winners and losers. France and several other member states have proposed classifying substances like ammonia and ethylene as strategic, while Germany, the largest chemical producer, has resisted, favoring improvements in framework conditions such as lower energy costs and reduced red tape.
The question of how to aid the industry is also controversial. Proposals range from state-aid exemptions to trade measures, but with the energy crisis still evolving and global competitors pressing ahead, the time for discussion is running out. Delays in implementing a plan risk holding back investments that would be critical to maintaining competitiveness against rivals in the Middle East and China.
The impact of this crisis goes beyond the chemical industry. It raises a deeper question about the sustainability of Europe's industrial model, which has built up dense industrial clusters that link chemicals and manufacturing. As final production increasingly moves abroad, the model has become harder to sustain. The risk is that if production of these basic chemicals disappears from the continent, it could trigger a contagion effect that sends shockwaves through the entire economy.
In my opinion, the EU needs to take a more proactive approach to addressing this crisis. It should focus on building resilient supply chains and investing in critical chemicals, while also working to reduce its reliance on imported energy. The time for discussion is over; the EU must act now to protect its industrial backbone and ensure its long-term competitiveness.
