In early European trading this week, benchmark Brent crude oil prices in Europe came close to all-time highs, surpassing US$139 per barrel, more than a $20 jump from last week and almost double the price since early December. Meanwhile, European natural gas prices are also soaring; the benchmark Dutch gas price, for example, last week reached a record-high 185 euros per megawatt-hour (MWh), which represents more than a tripling in price since October.

And Tuesday, the Biden administration banned oil and gas imports from Russia, although the European Union has not followed the U.S. lead. Russia normally supplies nearly 40 per cent of the EU’s natural gas, with Germany being the biggest consumer.

The pain from high energy prices isn’t limited to Europe. Here in Canada, motorists in many areas are suffering record-high gasoline prices. According to one estimate, last week regular gasoline surpassed $2.01 per litre in Labrador City, $2.00 in Vancouver, $1.86 in Sudbury and $1.55 in Edmonton. Analysts attribute the Canadian spike to increased demand (due to the easing of COVID restrictions) and the constrained supply due to the crisis in Ukraine.

However, there’s a bigger lesson. There has been a full-blown energy crisis brewing in Europe at least since last summer; these record-high prices are not merely the result of the Russian invasion. Dutch natural gas prices, for example, tripled from 20 euros per MWh last April to 60 euros by September. As Europe’s economy rebounds from the COVID slump, it’s now clear that there’s not been enough investment in expanding the capacity to produce and distribute natural gas to keep pace with the needs of growing consumption in the coming years.

Normally when a product experiences record-high prices, its suppliers expand production capacity to meet the demand. Yet we shouldn’t expect this automatic response in oil and natural gas. For decades, we’ve seen a steady and growing drumbeat of calls—from academics, media, activists and political officials—to hobble oil and gas development in favour of so-called “green” or “clean” energy.

For example, last summer EU officials outlined plans for a 55 per cent reduction in carbon dioxide emissions (relative to 1990 levels) by 2030, and “net-zero” emissions by 2050. Individual European countries have already aggressively pursued ambitious decarbonization, with Spain, for example, generating more than 40 per cent of its electricity from renewable sources in 2020.

The crisis in Ukraine and associated energy price spikes underscore the global economy’s reliance on oil and natural gas. If we can see such painful price spikes from short-term sanctions, imagine the consequences of permanent government restrictions. Rather than continue to demonize these energy sources and impose aggressive polices to constrain oil and gas development, the Trudeau government and other Western countries should allow for a neutral playing field among energy sources that heat our homes and power our vehicles.