Petersburg International Economic Forum, Putin made his reasoning clear: “Social and economic problems worsening in Europe” will “split their societies” and “inevitably lead to populism … and a change of the elites in the short term.”Īs it is, Germany is now anticipating the need for gas rationing, and its minister for economic affairs, Robert Habeck, warns of a “Lehman-style contagion” (referring to the 2008 financial crisis) if Europe cannot manage today’s energy-induced economic disruptions. The goal is to prevent Europeans from storing enough supplies for next winter, and to drive prices higher, creating economic hardship and political discord. First, Putin has opened a second front in the conflict by cutting back on the contracted volumes of natural gas that Russia supplies to Europe.
Looking ahead, five factors could make today’s energy crisis even worse. Fixated on his self-appointed mission of restoring what he views as Russia’s historic empire, he did not anticipate how they would respond to an unprovoked war next door. But, instead, the Kremlin may well have been preparing for war.īecause Europe depended on Russia for 35-40% of its oil and natural gas, Putin assumed that the Europeans would protest the invasion but ultimately stand aside. At the time, it appeared that Russia was trying to force prices up. Instead, it stuck to its contracts, even though it could have produced considerably more. Normally, with rising energy prices, a country like Russia would have increased its natural-gas sales to its main customer, Europe, above the minimum contracted volumes. The global market for liquefied natural gas (LNG) then tightened, with prices skyrocketing, and oil prices rose as well. That is when China ran short of coal and prices shot up. Today’s energy crisis did not begin with Russia’s invasion of Ukraine, but rather last year when energy demand surged as the world emerged from the COVID-19 pandemic. And, together with the geopolitical crisis arising from the war in Ukraine, it is further deepening the world’s great-power rivalries. In addition to stoking inflation, today’s crisis is transforming a previously global market into one that is fragmented and more vulnerable to disruption, crimping economic growth. In the 1970s, only oil was involved, whereas this crisis encompasses natural gas, coal, and even the nuclear-fuel cycle. In fact, today’s crisis is potentially worse. So, yes, this energy crisis is as serious. WASHINGTON, DC – Is today’s energy crisis as serious as similar previous ones – particularly the 1970s oil shocks? That question is being asked around the world, with consumers hit by high prices, businesses worried about energy supplies, political leaders and central bankers struggling with inflation, and countries confronting balance-of-payments pressures.
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