While tensions around the Strait of Hormuz are rattling global oil markets, energy security is no longer defined solely by access to fossil fuels. What China has understood, and Europe has not, is that security now depends on electricity systems that can deliver low-cost power at scale and support heavy industry.
Your browser does not support the audio element.
Please log in to listen to this commentary
0:00 / 0:00
PARIS—The war in Iran has triggered a dramatic redistribution of global wealth. US oil and gas companies stand to pocket at least $60 billion in windfall profits this year, while Russia could gain up to $100 billion in additional fiscal revenues. But nearly every economy, including energy exporters, is grappling with slower growth, rising inflation, and the prospect of persistently high interest rates. The clearest fault line runs through the Strait of Hormuz, as its closure has exposed Asia’s heavy dependence on Gulf energy. Europe, too, is paying a steep price: since the Iran war began, the European Union has spent an additional €24 billion ($28 billion) on fossil-fuel imports. At the same time, the current crisis is redefining energy security. In the 20th century, it meant reliable access to oil and gas. Today, energy security increasingly rests on the ability to electrify rapidly, produce clean power domestically, and control the technologies and supply chains on which the electricity systems of the future will depend. By those measures, China holds a clear competitive advantage. Electricity already accounts for roughly 30% of its total energy consumption, compared with about 20% in the United States and Europe. The EU, for all its climate ambition and electrification targets, remains dependent on imported fossil fuels and foreign clean technologies. The divide within Europe is just as striking. Spain, for example, has built a partial buffer against fossil-fuel volatility: renewables now set wholesale electricity prices roughly 80% of the time, averaging €60 per megawatt-hour. Italy, by contrast, remains heavily exposed to natural-gas markets, with electricity prices hovering near €130 per megawatt-hour. The European Commission’s AccelerateEU initiative reflects the urgency of electrification. This package of measures seeks to curb rising energy costs and reduce the bloc’s dependence on imported fossil fuels by scaling up electric vehicles (EVs) and heat pumps, expanding renewables, strengthening power grids, and building storage capacity. But it lacks the financing needed to achieve its stated objectives. Without a credible investment strategy, it risks remaining a tissue of ambition rather than a coherent plan. China, by contrast, has spent decades building an integrated electrification system, securing access to critical minerals, expanding its dominance in refining, scaling up renewables, batteries, and EVs, and electrifying its industrial base. As a result, it now controls strategic chokepoints across the clean-energy value chain. Given that industrial electricity prices in Europe were roughly twice as high as in China even before the current energy shock, the transition from a world dominated by petrostates to one shaped by electrostates is likely to accelerate. Access to low-cost electricity will translate directly into strategic autonomy and geopolitical leverage. While the US and Russia may benefit most from the fossil-fuel shock in the short term, the balance is set to shift toward China over time. Europe could still benefit from the energy transition, but that will require more than new targets and regulations. Success depends on large-scale investment and a well-designed industrial policy. Otherwise, Europe risks trading dependence on Gulf oil and gas for dependence on Chinese clean technologies. Encouragingly, the EU has begun to put in place the regulatory framework needed to support this shift. Most notably, the Net-Zero Industry Act, the Critical Raw Materials Act, the European Chips Act, and the Industrial Accelerator Act are aimed at securing control over key parts of the electrified economy by strengthening Europe’s industrial base, ensuring access to vital inputs, and bolstering technological capabilities. These initiatives also signal a more assertive approach to industrial policy. Public procurement, state aid, and other tools are increasingly geared toward supporting low-carbon products made in Europe or within trusted supply chains. In this sense, Europe is beginning—albeit cautiously—to play the same strategic game as China. The main constraint, however, is financing. As the 2024 Draghi report on EU competitiveness made clear, the investment required for the clean-energy transition far exceeds the bloc’s current resources. This underscores the urgent need for common financing instruments, including Eurobonds, to support the necessary spending. Europe still has time to catch up. But unless it matches its regulatory ambition with sustained investment, it will remain strong on rules and weak on delivery. In a world defined by industrial policy and geopolitical competition, there is little room for half measures.
