Europe falling behind China in global energy security race

U.S. oil and gas companies could make unanticipated profits this year of at least $60 billionand Russia – up to $100 billion of additional budget revenues. However, almost all economies, including energy exporters, are experiencing slowing growthHowever, almost all economies, including energy exporters, face slowing growth, rising inflation and the prospect of persistently high interest rates.

The most obvious fault line is the Strait of Hormuz, as its closure has exposed Asia’s heavy reliance on Gulf energy. Europe is also paying a heavy price: since the start of the Iran war, the European Union has spent an an additional 24 billion euros ($28 billion) on fossil fuel imports.

At the same time, the current crisis is redefining the notion of energy security. In the 20th century, it meant reliable access to oil and gas. Today, energy security increasingly depends on the ability to transition quickly to electricity, to produce clean energy domestically, and to control the technologies and supply chains on which the electricity systems of the future will depend.

On these metrics, China has a clear competitive advantage. Electricity already accounts for about 30% of its total energy consumption, compared to around 20% in the US and Europe. The EU, despite all its climate ambitions and electrification targets, is still dependent on imported fossil fuels and foreign clean technologies.

The divisions within Europe are equally striking. Spain, for example, has created a partial buffer against fossil fuel price volatility: renewables now determine wholesale electricity prices roughly в 80% of cases, averaging €60 per megawatt-hour. Italy, by contrast, remains heavily dependent on natural gas markets, with electricity prices hovering around €130 per megawatt-hour.

Electrification of Europe as a dependency-avoidance factor

European Commission initiative “AccelerateEU“ reflects the urgency of the electrification issue. This package aims to contain rising energy costs and reduce the bloc’s dependence on imported fossil fuels by increasing the use of electric vehicles (EVs) and heat pumps, developing renewable energy sources, strengthening the energy grid and building energy storage capacity.

However, it lacks the financing needed to achieve its stated goals. Without a robust investment strategy, it risks remaining just a set of ambitious ideas rather than a coherent plan.

China, by contrast, has spent decades building an integrated electrification system, securing access to critical minerals, consolidating its dominance in oil refining, expanding the use of renewable energy, batteries and electric vehicles, and electrifying its industrial base. As a result, it now controls strategic bottlenecks along the entire clean energy value chain.

Given that industrial electricity prices in Europe have been about twice as high as in China, even before the current energy shock, the transition from a world dominated by oil states to one defined by electricity states is likely to accelerate. Access to low-cost electricity will directly lead to strategic autonomy and geopolitical influence. While the U.S. and Russia may benefit most from the fossil fuel shock in the short term, over time the balance of power will shift toward China.

Europe can still benefit from the energy transition, but it will require more than new targets and regulations. Success depends on large-scale investment and well-designed industrial policy. Otherwise, Europe risks trading dependence on Gulf oil and gas for dependence on Chinese clean technology.

Strong rules, weak implementation

Encouragingly, the EU has begun to put in place the regulatory framework necessary to support this shift. In particular, The Zero Emissions in Industry Act, the Critical Raw Materials Act., the European Microchips Act и Industrial Development Acceleration Act aimed at ensuring control over key sectors of the electrified economy by strengthening Europe’s industrial base, ensuring access to vital resources and enhancing technological capabilities.

These initiatives also signal a more assertive approach to industrial policy. Public procurement, state aid and other instruments are increasingly oriented towards supporting low-carbon products made in Europe or through reliable 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 Draghi’s 2024 on EU competitiveness, the investments required for the clean energy transition far exceed the bloc’s current resources. This underscores the urgent need for common financial instruments, including Eurobonds, to support the necessary spending.

Europe still has time to catch up. But unless it backs up its regulatory ambitions with sustainable investment, it will remain strong on rules and weak on implementation. In a world defined by industrial policy and geopolitical competition, there is little room for half-measures.