The energy crisis in Europe is by no means limited to energy itself. It is the impetus for a massive geopolitical reconfiguration on a global scale.
No one today knows what the global energy and political landscape will look like when the dust settles (which, by the way, will happen only in a few years), but it is safe to say that they will be markedly different from those that existed before the conflict between Russia and Ukraine.
The International Energy Agency’s 2022 forecast states that we are currently experiencing “a global energy crisis of unprecedented depth and complexity” and that “there will be no return to the way it was” before the upheaval caused by the COVID pandemic and the war in Ukraine. Taken together, these two events have already significantly changed the configuration of energy trade around the world, but the “shock waves” for the global economy are just beginning.
Many see Europe’s current energy shortage as a kind of heroism, as the European Union took a huge hit by imposing energy sanctions on the Kremlin to cripple the Russian economy in hopes of ending the war. As the Economist recently reported, “to help Ukraine, Europe has demonstrated unity, endurance and a willingness to bear huge costs.”
However, in addition to admiration, the actions of Europe cause serious concern. Gas prices are currently six times higher than average, yet mathematical modeling suggests that a 10 percent increase in real energy prices is accompanied by a 0.6 percent increase in mortality during a typical winter season. This equates to more than 100,000 additional deaths among older people in Europe in the coming months.
However, the costs will have to be borne not only by Europe. The financial vulnerability of the EU threatens to destabilize not only the economies of the most indebted European countries, but also developing countries, as well as net energy importers around the world. As always, the poor will suffer the most, and the global South will inevitably feel a huge burden due to an energy war that has nothing to do with it. The devastating effects of the energy war between Russia and Europe are already affecting consumers around the world, and the situation will only get worse in the coming year.
The OECD’s recently released annual forecast foresees a significant slowdown in the global economy in 2023, slowing growth to 2.2 percent and a slight rebound in 2024 to around 2.7 percent. For the US economy, which has so far been more or less immune to the crisis, the outlook is even bleaker: it will grow just 1.8 percent this year and 0.5 percent in 2023. In other words, this is a serious stress test for Europe, its allies and enemies.
“There are growing concerns that the restructuring of the global energy system, American economic populism and geopolitical divisions threaten the long-term competitiveness of the EU and other countries, including Britain,” reports the Economist. “It is not only the prosperity of the continent that is at stake, but also the strength of the transatlantic alliance.” Many European leaders have been sharply critical of US protectionism, most notably the recent $400 billion Inflation Reduction Act.
The current crisis has sharply exacerbated Europe’s economic vulnerability. The move away from Russian influence is pushing many countries into the arms of China, threatening similar vulnerabilities and future energy shocks if Beijing decides to use its monopoly on rare earth minerals and other clean energy elements that it controls almost entirely.
The West has allowed China to out-compete and innovate in clean energy technologies, so the transition to green energy in the near term will be almost impossible without building ties with China.
Clash of the Titans
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