If you don’t like puns, don’t worry: Experts say that the war in Ukraine could lead to an energy crisis that we haven’t seen in a long time.
There are fears that Russia, one of the world’s biggest oil exporters, could stop producing oil. This has caused the price of oil to rise to the highest level in 10 years.
The rise has been very fast and sudden. It was a week ago that oil prices in the U.S. were at $92. They were around $109 last night.
Western leaders have so far been very cautious when it comes to the energy issue. Even though they’ve effectively wiped out the Russian economy with a barrage of sanctions, they haven’t punished Russian energy companies as much as they should have. For example, they haven’t kicked them out of the global messaging service SWIFT.
That’s because Europe can’t do anything about Russian energy because it has no choice. The EU gets 40% of its gas from Russia, which is used for important things like heating homes and running businesses. Europe, on the other hand, doesn’t have many options for replacing lost Russian gas. Mexico and Canada could help, but Europe doesn’t have many options.
Carve outs haven’t helped Russian energy sales much. Since the war started, Russian energy exports have dropped a lot. Because of the sanctions on financial institutions and the bad reputation of Russian businesses in general, about 70% of Russian crude oil exports “can’t be touched,” energy analyst Amrita Sen said on CNBC, adding that this is because of both. “The worst crisis since the Arab oil embargo and the Iranian revolution in the 1970s,” says IHS Markit Vice Chairman Daniel Yergin. That’s what that could lead to.
If you compare your energy situation to the 1970s, it’s not a good sign that you’re having trouble. Because the US helped Israel in the Arab-Israeli war of 1973, OPEC cut off oil exports to the US, which caused prices to rise and economic growth to slow down.
Looking at the next few years…
If Western governments don’t want to cut back on Russian energy, they might decide that funding Vladimir Putin’s invasion of Ukraine is even worse than cutting back on Russian energy. Nancy Pelosi, the speaker of the House, said yesterday that she’s “all for” a ban on Russian oil. President Biden said “nothing is off the table.” When it comes to Europe, the place where this Catch-22 really hits home, leaders are talking about what to do if Russian supplies were to run out.
In the end, we don’t know how this crisis will turn out, but we do know that Europe’s relationship with energy will never be the same again.