Europe’s Energy Paradox: How the Ukraine War Deepened Germany’s External Dependencies

Before the war, Europe—especially Germany—understood its reliance on Russian gas primarily as a political risk, not an industrial one. The assumption was that diversification could be achieved relatively quickly and at manageable cost if geopolitics demanded it.

This misdiagnosis mattered. Energy dependence was not simply a supplier problem; it was embedded in Europe’s industrial model. German chemicals, steel, and manufacturing had been designed around large volumes of cheap, stable gas. When policymakers framed dependence as a moral failure rather than a structural condition, they underestimated the economic disruption that abrupt disengagement would cause.

After the invasion of Ukraine, Europe moved rapidly—and understandably—to cut Russian gas imports. The decision was politically unavoidable. The error lay not in the objective, but in the sequencing.

Russian gas was removed faster than viable substitutes could be built. LNG terminals, renewables, grid expansions, and hydrogen infrastructure all require time. In the interim, Europe accepted permanently higher and more volatile energy prices as a temporary sacrifice, assuming industry would endure until alternatives arrived.

For energy-intensive sectors, this assumption was wrong. Industrial investment decisions operate on decades-long horizons, not electoral cycles. Once energy costs crossed a certain threshold, Europe ceased to be a credible location for future capacity.

European policymakers implicitly assumed that firms would maintain production and investment domestically, absorbing losses or relying on subsidies until the energy transition stabilized.

Chemical companies did the opposite. They continued operating existing plants where possible, but redirected new investment abroad. This distinction was often missed in public debates. Plant closures are visible and politically costly; investment redirection is quieter but more decisive.

By the time policymakers recognized the shift, capital commitments to large-scale chemical complexes in China were already locked in. At that point, the loss was no longer cyclical but structural.

As Europe adopted the language of “de-risking,” the assumption was that exposure to Russia would be reduced and strategic vulnerability minimized. In practice, risk was not eliminated but rerouted.

German firms moved energy-intensive production to China, where energy is cheaper and supply more predictable. Yet China itself increased imports of Russian gas, often at discounted rates. The result was an indirect re-exposure to Russian energy—now mediated through a Chinese industrial system over which Europe has far less influence.

Europe reduced direct dependency while increasing second-order dependency. This was not de-risking; it was risk layering.

Once major chemical investments move abroad, secondary effects follow: suppliers, R&D functions, skilled labor, and innovation ecosystems begin to shift as well. European policy treated industrial capacity as modular and reversible. It is neither.

The error was assuming Europe could remain an advanced industrial power while offshoring the most energy-intensive segments of its value chains. In reality, those segments often anchor entire ecosystems. Their departure weakens Europe’s technological base, reduces productivity growth, and narrows future policy options.

Europe’s energy prices are partly a consequence of ambitious climate policies. Yet by driving heavy industry abroad, those policies have encouraged carbon leakage. Chemical plants operating in China typically face looser emissions constraints and rely on more carbon-intensive energy mixes.

The accounting looked favorable—European emissions declined—but the global outcome worsened. This undermined both climate credibility and industrial competitiveness, revealing a disconnect between territorial emissions targets and global environmental impact.

Finally, Europe failed to fully account for the geopolitical consequences of industrial relocation. Dependence on Russian energy once carried political risk, but it was embedded in a mutual economic relationship. Dependence on Chinese industrial ecosystems introduces a different, potentially more asymmetric vulnerability.

In seeking autonomy from Russia, Europe increased its exposure to China—while still indirectly consuming Russian energy. This outcome contradicts the original strategic intent and reduces Europe’s leverage in future crises.

None of these errors, taken alone, was irrational. Each was defensible under intense political, moral, and time pressure. But together they produced a perverse result: Europe weakened its industrial base, failed to eliminate energy dependence, increased geopolitical exposure, and outsourced both emissions and strategic capacity.

The lesson is not that Europe should have continued buying Russian gas indefinitely. It is that energy security, industrial policy, and geopolitics cannot be managed in isolation or on different timelines. When values-driven decisions are not matched by credible economic substitutes, markets do not resist—they reroute.

And in this case, they rerouted Europe’s industrial future out of Europe itself.