Europe's "Less" Is Doing More Than Anyone Gives It Credit For

Global energy markets tightened after the Strait of Hormuz was effectively closed in March and Saudi Arabian output fell by roughly 1.9 million barrels per day in August. Tanker rates have surged and the U.S. Energy Information Administration does not expect Middle East production to return to pre-conflict levels before the second quarter of 2027. Those shocks helped drive Brent toward the low-$100s per barrel.

By conventional measures Europe looked vulnerable: the EU imports 57 percent of its energy and spent €340 billion on fossil fuel imports last year. Yet the economic damage so far has been modest. In May the European Commission trimmed its 2026 growth forecast from 1.5 percent to 1.1 percent and still expects a rebound to 1.4 percent the following year, with unemployment roughly 6 percent across that window. That outcome reflects long-term reductions in energy intensity and shifts in the energy mix rather than simple insulation from price signals.

Over the last decades the EU steadily cut the energy required to generate a euro of output — about 44 percent less than in 1995, with more than a third of that improvement since 2019. Between 1990 and 2024 the bloc increased economic output by more than 70 percent while cutting net greenhouse gas emissions by around 40 percent; it now emits about 184 grams CO2e per euro and accounts for roughly 5 percent of global emissions. Primary energy consumption fell 9.6 percent in the decade to 2024, and Germany's primary energy use declined 21 percent over the same period. Those shifts mean Europe can produce more with less fuel and has fewer import-dependent consumption flows vulnerable to interruption.

The contrast between Spain and Italy during the recent shock illustrates how different policy choices matter. Spain ended 2025 with renewables supplying 55.5 percent of generation (56.6 percent including self-consumption) and more than 80 GW of wind and solar capacity; gas set the electricity price in only about 15 percent of hours this year. Italy, by contrast, sources 74.8 percent of its energy through imports, relied on fossil fuels for 52.3 percent of power, and saw gas set prices in 89 percent of hours. After the Hormuz closure, Spain grew 0.7 percent in Q2 and outpaced Germany, France and Italy — a performance Goldman Sachs described as structural resilience and tied to the country’s productivity gains since 2021. At the same time, analysts flagged Italy as the most exposed eurozone economy to persistent high prices.

That picture does not eliminate valid competitiveness concerns. European firms face higher energy costs in some industries — EU companies pay about two to three times what U.S. firms pay for electricity and four to five times for gas, according to Mario Draghi’s competitiveness work. Goldman Sachs found examples where a large European car factory could carry roughly €500 million a year in excess power costs versus a U.S. competitor. The broader point is that Europe’s economy is being judged on metrics shaped by differing national choices: some expenditures that register as output in other systems — for example, higher health spending in the U.S. — are lower in Europe, where social and regulatory choices shift who bears costs and how growth is measured.