“Compared to previous oil shocks, it’s a different world.” Auto industry expert John DeCicco, an engineer at the University of Michigan in Ann Arbor, says history may not tell us much about how consumers will react to soaring prices. petrol. In the past, the oil price shock has prompted consumers to drive less and buy more fuel-efficient vehicles to ease the sting of high prices at the pump. This time, however, increasingly dramatic wealth gaps in many countries around the world could break that pattern. According to DeCiccothe demographics of consumers likely to buy new cars are richer than in recent decades, which means buying habits may not change as drastically as we’ve seen before. However, this is only a small facet of a massively and rapidly changing economic landscape. Economic and geopolitical turmoil has upended the global economy and made the future unpredictable. Major energy companies are not rushing to invest in fossil fuels despite the current factors favoring the sector. In addition to the continued ability of the wealthy to continue buying gas consumers, the continued volatility in the energy sector due to the continued fallout from the novel coronavirus pandemic and the ongoing Russian war in Ukraine has driven the world back to fossil fuels with vengeance. In fact, even as the world races to condemn Putin’s acts of aggression and apparent war crimes in Ukraine and exerts economic pressure on the Kremlin, European consumption of Russian oil and gas has actually increased since then. the start of the war. According to Brussels think tank Bruegel, Europe bought $24 billion worth of oil and gas in March alone.
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At the beginning of last month, the European Commission published a plan cut Russian gas imports to Europe by two-thirds this year, with the suggestion that 60% of that 101.5 billion cubic meters be replaced by gas from other countries, including the United States and Qatar, and 33% from renewable energy and conservation efforts. However, the European Commission cannot enforce this plan and it is not clear whether European nations will decide to comply. Admittedly, weaning Europe off Russian oil and gas will be a Herculean feat. In the meantime, Ukraine is continue to plead with the EU for a complete embargo on Russian oil and gas.
Despite the fact that global oil demand is expected to exceed pre-pandemic levels in the short term, Big Oil is well aware that long-term political goals and public opinion favor renewable energy. Even in the face of a global energy supply crisis, energy companies have been reluctant to invest in increasing fossil fuel production. “The market is scared,” said Ricardo Hausmann, an economist at Harvard University, quoted by Nature.
All this indicates that the end of the energy supply crisis is not in sight. Bearish leadership in the fossil fuel sector and soaring consumption have left the energy sector in a bind. The fallout from high energy prices will be significant and devastating in many ways. High energy costs and fuel shortages (translating into fertilizer shortages), combined with the loss of Russian and Ukrainian grain on the world market, could lead to a food price shocks, which are historically one of the most reliable drivers of political and social conflict and unrest. While the world has enough grain to compensate for the loss of Ukraine and Russia, price increases, even if short-lived, will put enormous pressure on countries that are already hungry.
In addition, tensions in the energy market are pushing more and more countries to increase their consumption of coal, thus implementing global climate objectives. extreme risk. While many experts hope that the war in Ukraine will truly catalyze the clean energy transition as the world struggles to consolidate its energy security and independence without relying on Russian oil and gas, in the short term, trends towards High-emitting fossil fuels are alarming.
By Haley Zaremba for Oilprice.com
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