HIIA Analysis – Written by Ruslan Bortnik & Máté Kováts
In this analysis, we investigate how Europe’s abrupt loss of access to relatively cheap energy sources reshaped the continent’s economic fundamentals, not as a one-off “price shock,” but as a structural competitiveness problem that ripples through trade, industry, investment, and public finances. We map the scale and mechanics of the energy shock that unfolded in 2022–2025: the surge in benchmark gas and power prices, the widening gap between European industrial tariffs and those of key competitors, and the forced substitution of long-established supply patterns with costlier alternatives such as spot liquefied natural gas (LNG). We then connect energy costs to macroeconomic outcomes, including the deterioration of the external balance and the inflationary wave that pressured monetary policy, tightened financing conditions, and reduced the room for productive investment. On the real-economy level, we trace how elevated energy and input prices translated into lost output and shrinking margins in energy-intensive sectors such as metallurgy, chemicals, and fertilizers, while also spilling over into downstream manufacturing (including in the automotive and machinery sectors) via higher materials costs, disrupted supplier networks, and weaker export price competitiveness. To move beyond a qualitative diagnosis, we assemble and calculate the main channels of economic damage from 2022 to 2025: additional energy import costs, fiscal outlays for emergency support measures, trade losses linked to the contraction of EU–Russia commerce, industrial underperformance, and GDP shortfalls relative to pre-crisis trajectories. Finally, we assess the durability of Europe’s current “adaptation” and outline forward-looking risks, including the potential for renewed instability as further policy decisions on the phase-out of remaining Russian energy flows interact with broader restrictive regimes and a tighter global market for hydrocarbons and LNG.