The world is experiencing the first global energy shock in its history, the secretary-general of the World Energy Council said this week, expecting the crisis will have a transformational effect on energy consumption.
“I think this is a first global energy shock, this isn’t the same as the 1970s crisis, oil shock crisis. This is a … consumer driven crisis and the consumer-driven adjustments that are going to come out of this are going to be very significant,” Angela Wilkinson told CNBC.
“If you look at the price of … refined products in many parts of the world, they’re now unaffordable for many of the bottom half of societies,” the official also said. “We’re going to have to see some form of massive reallocation of … money coming out of … this crisis. Consumers are really, really hurting.”
Indeed, the cost-of-living crisis has become a top issue for some of the wealthiest nations in the world. In the UK, millions have been plunged into energy poverty by gas price inflation, which has prompted an upward adjustment of electricity prices.
Across the Channel, the EU is also struggling to keep energy affordable while punishing Russia for its invasion of Ukraine with sanctions that ultimately make energy more expensive.
In the United States, gasoline and diesel prices are running at all-time highs, and legislators are trying to arrest this trend by approving a bill that seeks to prevent what its sponsors have dubbed price-gouging on the part of fuel retailers.
In both the U.S. and the UK, inflation remains at the highest in four decades, and it’s not a lot better in the EU. In the developing world, inflation trends are strong, too.
“The biggest challenge is going to be this new context of affordability and energy justice,” Wilkinson told CNBC. “It’s a big uncertainty and it’s going to require policy innovation but it’s also going to require a new approach to international cooperation.”
By Irina Slav for Oilprice.com
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If anything, the pandemic has proven irrevocably the inseparable link between the global economy and oil. By destroying one you destroy the other and vice versa. There could neither be a global economy nor a modern civilization as the one we know and enjoy without oil and gas. The global economy operates on oil and gas and will continue to do exactly that well into the future.
The Ukraine conflict has mainly amplified the impact of energy on the global oil economy, food production and costs of living.
We could indeed be headed towards a global energy shock with skyrocketing energy prices affecting global economic growth, pushing inflation to its highest levels in recent times and setting the scene for food shortages.
This should be a salutary lesson to those calling for the ditching of fossil fuels thus leading to underinvestment in exploration and production expansion of oil and gas. The result is shrinking spare production capacity, skyrocketing energy prices and food products.
What is needed urgently now is immediate and continuous investments of hundreds of billions of dollars for the next ten years in energy projects, less rhetoric by the environmentalist activists and also less rash policies by the EU aimed at accelerating energy transition at the expense of fossil fuels.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London