Central Eastern Europe’s Achilles Heel: The Energy Question

The high cost of energy in Central Eastern Europe and its slow progress in the green transition is a weakness that could be turned into an opportunity.

Energy is the only universal currency. It is necessary to get anything done,” argues Vaclav Smil, a leading thinker on energy issues, in his book Energy and Civilisation. If so, Europe, and much of Central Eastern Europe in particular, finds itself in a position of weakness.

The Russian invasion of Ukraine exposed vulnerabilities in the energy supply of Central Eastern Europe. At the height of the energy crisis in 2022, the price of fuels skyrocketed by 80 per cent in Estonia and Lithuania and 30 per cent in Poland, Czechia, Romania, and Hungary. The trend continued in 2023, in some cases outpacing 2022.

Industry felt the hit, as producers grappled with high costs of production. Some firms resorted to plant stoppages, others threatened to relocate to countries with lower energy prices. OFZ, one of the largest metal producers in Slovakia, announced plans to offshore to Uzbekistan, where it expected to pay five times less for its energy. In the grip of the crisis, Estonia, Hungary, Czechia, Latvia, and Lithuania all slid into a recession while some began to speculate about the region’s looming de-industrialisation, as it lost competitiveness on the energy front.

Fast forward to the present. Global energy prices are moderating, and the growth prospects for Central Eastern Europe are improving. The topic of high energy bills has been fading from public discourse and policy priorities. OFZ has reconsidered offshoring, influenced by other host-country parameters that include weak investor protection and less developed infrastructure. Yet, as the acute phase of the energy shock recedes into the past, questions linger about its lasting impact. Has it inflicted a scar on Central Eastern Europe or were the fears of its repercussions overblown?