According to a fresh report the energy crisis could push 141 million people into poverty.
BACKDROP
The ongoing conflict between Russia and Ukraine has had a significant impact on the energy markets, both in Europe and beyond. As two of the largest energy producers in the region, any disruption in their ability to supply energy has far-reaching consequences. With Russia being a major supplier of natural gas and oil to many European countries, the ongoing conflict has led to an energy crisis that has affected not only the region but also the global energy markets.
IMPACT
One of the impacts of the conflict on energy markets is the disruption in the supply of natural gas from Russia to Europe. According to the International Energy Agency (IEA), over 40% of the natural gas used in the European Union (EU) is imported from Russia. This dependence on Russian gas has left the EU vulnerable to any disruptions in the supply chain and has increased household expenditure throughout Europe.
Another impact of the conflict on the energy markets has been the increase in oil prices. As tensions have risen, there have been concerns that the conflict could spill over into other parts of the region, which has led to increased uncertainty and volatility in the oil markets. This increase in oil prices has had a knock-on effect on other energy markets, including gas and electricity, as the cost of production and transportation has increased. A report published by WEF last month stated that soaring fuel and food prices could persist for the next two years.
THE REPORT
An international group of scientists modelled the impact of increasing fuel prices on household expenditure across the globe. The report states that there has been a total increase of 62.6% – 112.9% in household energy costs since the invasion of Ukraine by Russia. This in turn has contributed to a 2.7% – 4.8% increase in household expenditure. As costs accelerate fastest for poor households, this increase in expenditure could push 141 million people into extreme poverty.
The energy crisis has hit households in two ways, directly increasing the household energy costs for heating, cooling and mobility and indirectly by pushing up the costs of other goods and services throughout global supply chains. Due to the unequal distribution of income across the world, reflected in different household consumption patterns, soaring energy prices will impact households in very different ways.
Rising energy prices are making households more vulnerable to energy poverty, particularly during the cold season. The International Energy Agency (IEA) recently reported that the number of people living without electricity is increasing worldwide. The global economy is much more connected than before, increasing negative impacts through global supply chains and putting pressure on the cost of living of households.
WAY FORWARD
This unprecedented global fuel and energy crisis reminds us that a system highly banking on fossil fuels bolsters energy security risks as well as accelerates climate change. This crisis reminds us of the urgency to realise diversified energy sources and to develop a more diverse, reliable and independent energy system while pushing for global clean and renewable energy. Multilateral action is very important to address this issue and to implement it on a global level.
In conclusion, the ongoing conflict between Russia and Ukraine has had a significant impact on the energy markets, both in Europe and beyond. The disruption in the supply of natural gas and the increase in oil prices has created an energy crisis that has affected not only the region but also the global energy markets. The transition to renewable energy is a long-term process, and in the short term, countries still need to rely on other sources of energy to meet their needs. As the conflict continues, it is likely that we will continue to see instability and volatility in the energy markets, and a greater focus on energy security and diversification.