According to the European Union, Russian imports accounted for 62.4% of all energy imports in 2021. Currently, the number is 58.2%. Obviously, the current figures reflect the impact of sanctions and unexpected delays in supply like the stoppages in the Nord Stream pipeline. The EU states that 58% of its energy consumption comes from outside the European Union. A little bit of math says that the EU nations get about 35% of its energy from Russia.

What this means is that a ten percent hike in prices from Russia is a three percent hike in the wholesale price to the European Union. Not all countries get the same percentage of energy from Russia and energy is a traded commodity within the European Union, so prices vary. France is far less dependent on Russian gas than Germany, but the French are not immune to energy markets. The rising tide of energy costs will swamp all European boats.

Currently, natural gas prices in Europe are roughly 300% higher for the year, but off the peak of last month. The reason for that is the EU is stepping into the natural gas markets to bring down the price. They do this through various ways, but ultimately, they will end up printing money to subsidize gas prices. In Britain, things are not quite so bad as gas prices are only 200% higher for the year. The new UK government plans similar interventions as the European Union.

Now, there are two reasons for prices to go up. One is speculators think there will be future shortages or future spikes in demand. Most energy is traded in the market with futures contracts, so it is like a casino. This is where governments can intervene in the market and impose caps. Even if you think gas will be higher in six months, you cannot buy or sell a contract to that effect. Government imposes a cap and subsidizes the utility companies for any shortfall.

The other reason prices go up is supply disruptions. Russian natural gas is the cheapest in Europe, but its availability has declined. That gas has to be replaced so European buyers must go to more expensive sources. This not only means a higher price, but it drives up prices for those products. This in turn drives up prices for the next level and the next level after that. Artificially replacing the cheap product with an expensive one alters the entire energy market.

As the figures in the first paragraph indicate, there is no way to replace Russian natural gas in Europe at this time. The global supply of LNG simply does not exist to replace Russian gas, even if the infrastructure existed, which it does not. Even if it did, the cost of liquifying, then transporting gas to Europe is much higher than getting it via pipeline from the lowest cost producer on earth. Replacing Russian gas will result in a massive spike in the cost of living and the cost of doing business.

That is the other piece of the puzzle. Much of the European standard of living depends on hidden subsidies to European business. The German government, for example, secured extremely cheap Russian gas for German industry. In the past, this gas has been purchased with euros, which magically appear when needed. The same trick happens with the American dollar. This means every time someone takes euros for payment, they are paying a hidden tax.

Now, the world must buy Russian gas in rubles. The reason for this is the West has been systematically stealing Russian assets, including their foreign holdings, in response to the war. The Russians did the prudent thing and stopped taking dollars and euros for payment. All European customers for Russian gas have to first buy rubles on the market and then buy their gas from Russia. This is why the ruble has been the best performing currency in the world.

This has another consequence. When those euros suddenly appear out of thin air, their relative value to the ruble changes. The euro is worth about sixty rubles at the moment, down from a peak of 150-1 earlier in the year. If more euros magically appear, the ratio of euros to rubles changes, unless the Russian central bank increases the number of rubles in the world to match the euros. This would then lower the value of the ruble compared to other currencies.

Russia is not obligated to create more rubles. They have inflation like everyone else, so they could choose to let the ruble adjust, which means the euro buys less gas and that means that hidden tax suddenly shifts back to the Europeans. In other words, those magically appearing euros no longer eat away at the profits of the seller but erode the purchasing power of the buy. This then drives up the cost of everything, especially the energy products purchased from Russia.

How many euros need to magically appear? Current estimates say about 1.5 trillion new euros are needed to bridge the gap. Then there is the liquidity problem that is facing Europe markets. The extra euros needed to buy energy cut into the cash reserves of industry. This impacts their credit rating, which drives up the cost of borrowing and we quickly arrive at a financial crisis. The only known solution is to make more euros magically appear.

As an aside, the United States faces a similar problem. Gasoline prices were artificially lowered through the release of the strategic petroleum reserve. Instead of making dollars magically appear, they made oil magically appear. That is scheduled to end, coincidentally, just before the November election. That means the supply of domestic crude will drop and that means prices go back up. It also means the price of home heating oil will go up in time for winter.

Putting that aside, the energy crisis in Europe is quickly becoming a financial crisis, which in turn can easily become a currency crisis. The euro has been a junior reserve currency for twenty years, but it is not the reserve currency. It can quickly decline to becoming just another currency in the world. The hidden profit, the seigniorage, that came with being a reserve currency goes away. That means more cost heaped onto the European economy in the form of inflation.

Incredibly, it does not stop with bad policy. A plan being debated is to create a mechanism for financing current energy costs with future energy profits through a subsidy system to consumers and suppliers. The first step is a cap on what utilities can charge consumers. The gap between that cap and the real cost will be met with loans from the central bank. This way it does not have to be treated as pure money creation, but as an asset on the books of the central bank.

In exchange for these forced loans, the utility will be allowed to maintain the high price when the energy markets return to normal. In other words, this is a hidden debt imposed on consumers. In exchange for a smaller increase now, they will get a small decrease in the future. That means, in theory, a much larger profit for the utility in the future when prices decline. They can now use that hypothetical profit in the future as collateral to borrow money today.

This is not a new scheme. In the United States, something similar happened with cigarette taxes imposed after the tobacco settlement. States used the promise of more tax revenue in the future to create tobacco bonds. The buyer got a piece of the future tax revenue in exchange for cash today. Of course, those tax revenues did not materialize and the states took a bath. On the other hand, Goldman Sachs made billions from the scheme so it was all good.

What all of this tells us is that the Western economic model, rooted in the dollar and American military, is something of a Ponzi scheme. Assets are sold off for quick cash, but money is created to fill the hole based on the promise of some future bonanza that never materializes. This, in turn, means more money creation through the magic of debt, which inflates the credit bubble further. Europe is going to solve its energy crisis today with a financial crisis tomorrow.

If you like my work and wish to kick in a few bucks, you can buy me a beer. You can sign up for a SubscribeStar subscription and get some extra content. You can donate via PayPal. My crypto addresses are here for those who prefer that option. You can send gold bars to: Z Media LLC P.O. Box 432 Cockeysville, MD 21030-0432. Thank you for your support!

Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.

The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.

Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link. If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb.  Just email them directly to book at

sa***@mi*********************.com











.