The energy crisis in Europe is going to hit hard around the world this winter – but it will be nothing compared to next year. The recently released World Economic Outlook, the flagship annual report from the Organization of Economic Cooperation and Development (OECD) paints a grim picture for the months and years to come as the world grapples with an unfolding global crisis the likes of which we’ve never seen.
In its own annual energy outlook, the International Energy Agency (IEA), not known for sensationalizing, proclaimed that we’re in the midst of a “global energy crisis of unprecedented depth and complexity,” and that “there is no going back to the way things were” before Covid-19 and Russia’s illegal invasion of Ukraine restructured the global energy trade. It’s going to be a tough winter, with energy prices rising painfully high for consumers across the United States and Europe. Projections show that in the UK alone, 26 million people are expected to fall into energy poverty over the course of this winter – a number that amounts to one in three households. And the UK will probably fare much better than many other European countries. But the squeeze we’re experiencing this winter is only going to make the following one even harder.
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The energy crisis we’re experiencing now will soon turn into an everything crisis. High natural gas prices now have led to a fertilizer shortage that will turn into a food shortage next year as we potentially stand to lose nearly 2 percent of global corn, wheat, rice, and soybean production. And high energy prices have led to serious supply chain and manufacturing issues in an untold number of sectors, from automobiles to medicines, the impact of which will take a while to reach the consumer.
The severe reduction of Russian oil and gas supply on the global market is going to impact the global economy for years to come. The OECD foresees “a significant slowdown” for the global economy in 2023, decreasing to 2.2%, and then a “little bit of a rebound in 2024” to about 2.7%. But that slowdown is peanuts compared to what’s expected for the United States economy. So far the United States has remained relatively sheltered from the financial fallout of the Russian war in Ukraine, since the nation is a net exporter of energy. But that is all about to change. The OECD projects that the U.S. economy will grow by 1.8% this year (compared to 2.2% for the global economy), and just 0.5% next year – a dismal rate – before ‘recovering’ slightly to achieve 1% growth in 2024.
Of course this is nothing compared to the pain that will be felt by Moscow as sanctions against the Kremlin hit their target. Pereira says that Russia will suffer from “a massive recession, not only this year, but next year and the following.” And that’s to say nothing of the Ukrainian economy, which has a long road ahead as they remain occupied and threatened by what President Volodymyr Zelenskyi has called Russia’s “energy terrorism.” Developing countries and oil-importing countries with weak currencies will also be hit particularly hard. In fact, while we continue to refer to it as the ‘European’ energy crisis, it is really the global south that will suffer most from the tight energy market.
As we head into 2021, there’s no longer a clear strategy to make global supply chains run smoothly and keep energy markets in check. While predictions abound, it’s also abundantly clear that we’re in uncharted territory, and these predictions should be taken with a grain of salt. Even top-level economic experts are confused about the complex and contradictory indicators muddying outlooks that are typically relatively cut and dry. All of this is to say that it’s hard to predict exactly what the next few years will hold. The only clear consensus is that whatever it is, it almost certainly won’t be good.
By Haley Zaremba for Oilprice.com
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