In no uncertain terms, we are facing the 'first truly global energy crisis' according to a new report from the International Energy Agency (IEA). While Europe is the epicenter of the current volatility and scarcity in energy markets, the problem is far from isolated. Continuing to refer to the current circumstances as “Europe’s energy crisis” is not only myopic, but potentially dangerous for the countries that stand to lose the most, almost none of which are on the European continent.
According to IEA director Fatih Birol, the biggest victims of this crisis will (unsurprisingly) be emerging and developing countries. In particular, oil-importing nations in Africa, Asia and Latin America will be extremely hard-hit, as fuel prices skyrocket against their relatively weak currencies. Indeed, back in May the International Monetary Fund (IMF) lowered its growth projections for such oil-importing nations, as skyrocketing energy prices add onto a laundry list of pre-existing struggles in the developing and emerging world. “Higher commodity prices add to the challenges stemming from elevated inflation and debt, tightening global financial conditions, uneven vaccination progress, and underlying fragilities and conflict in some countries,” the report stated.
Global energy markets were already in flux as economies across the world struggled to recover and reach equilibrium after the first wave of Covid-19 lockdowns. This recovery was never fully realized, however, before Russian forces illegally invaded Ukraine on February 24th of this year. In the ensuing months, the West has slapped sanctions on the Kremlin, which has responded in kind by cutting off the flow of natural gas to Germany through the Nord Stream pipeline. These pyrrhic tactics have sent shockwaves through regional and global energy markets, leaving the European continent with a looming energy shortage as it heads into a long, cold winter.
Now, prominent news outlets are reporting that “the end of the European energy crisis is in sight” and that “Russia’s energy influence over Europe ‘is nearly over.’” According to Birol, however, there is no cause for celebration just yet. As long as Russia continues to wage its illegal war in Ukraine, we can expect continued market volatility, and an ongoing shortage of liquified natural gas supply the world over. What’s more, OPEC+’s recent agreement to impose shockingly steep production cuts are certain to kick the global economy while it's down (while earning a lot of money for oil-producing nations). And regardless of the progress made in Europe, for the rest of the world, the crisis is just beginning.
“Our world has never ever witnessed an energy crisis with this depth and complexity,” Birol warned. Indeed, the energy crisis is not just an energy crisis. It is also a looming food crisis that will have long-ranging impacts. As industrial fertilizers are petrochemical products, the energy crisis has resulted in a fertilizer crisis that will decrease global food yields and exacerbate hunger, particularly in countries already reliant on food aid.
While it can’t be overlooked that the current energy crisis will cause major economic pain amongst households already struggling economically, and will further stunt the growth and development of the poorest nations, there is a silver lining to this massive market upset. The massive uptick in fossil fuel prices and volatility in global energy supply chains has interrupted business as usual and created a massive push toward clean energy development. In Europe, solar energy installations smashed records all summer, and in the United States, the Inflation Reduction Act includes massive climate measures (although it will have little to no actual impact on inflation).
For the first time ever, the EIA’s recent forecast predicts that global demand for every fossil fuel will either peak or level off in the near future. As the window closes on humanity’s opportunity to lower emissions enough to avoid the worst impacts of climate change, the sudden investment in clean energy alternatives at the eleventh hour brings some comfort in the face of an otherwise grim prognosis.
By Haley Zaremba for Oilprice.com
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