It’s not just Europe and the United States—eye-watering prices are wreaking havoc around the world.
As Russia plays hardball with Europe’s gas supply, the continent is staring down a worrisome energy future—and it’s not alone. For months, sky-high natural gas and oil prices have been wreaking havoc around the world, and experts warn that there is no end in sight as long as the war in Ukraine barrels on.
From Ecuador to South Africa, fuel shortages and blackouts have plunged import-dependent countries into economic turmoil, leaving desperate governments scrambling for workaround solutions. In Sri Lanka, which was already buckling under mounting crises, acute shortages and dayslong lines have forced authorities to issue work-from-home orders. Pakistan has resorted to shortening its work week to relieve pressure from lengthy power cuts, while Panama has been rocked by demonstrations over surging prices.
“We are experiencing the first global energy crisis,” said Jason Bordoff, an energy expert at Columbia University, who noted that the crunch has hit almost all of the world’s regions and energy sources. “The ripple effects are being seen globally, and I don’t think we’ve seen the worst of it yet.”
Markets were already tight before Russia invaded Ukraine, the result of a combination of the pandemic, supply chain slowdowns, and climate shocks. That was compounded by curtailed Russian gas exports, which forced Europe to turn elsewhere for its supplies and further drove up prices in the global marketplace. Now, as climate change-fueled extreme heat adds more fuel to the fire, these challenges have only deepened.
“It’s just an interconnected global system,” Bordoff said. “When you put pressure in one place, it is felt somewhere else.”
The last time the world experienced a disastrous energy crunch—albeit only for oil—it was the 1970s, and OPEC had imposed an embargo that sent shockwaves through the oil industry. That crisis birthed the International Energy Agency (IEA) and pushed industrialized nations to develop strategic reserves in preparation for future supply disruptions, said Antoine Halff, an expert at Columbia University’s Center on Global Energy Policy. But many emerging market economies and debt-laden countries don’t have this same cushion, leaving them especially exposed to any disturbances.
“Today, we have a whole new cast of countries, smaller countries that have been developing rapidly and that have been using more and more energy—and that’s a great sign that reflects their economic development,” Halff said. “But that also made them much more vulnerable to disruption risks, and they’re not part of that safety net of the IEA.”
Take Pakistan, which has been struggling to cope with power cuts, or Ecuador, where deadly protests over surging fuel prices and costs brought the country to a near standstill in June. In recent weeks, both Ghana and Cameroon have been gripped by protests over fuel prices and shortages. So have Argentina and Peru, where surging energy costs have sparked strikes and demonstrations.
“The poorest countries in the world are struggling economically already, are in weak fiscal positions, and are just struggling to afford energy at all,” Bordoff said. “You’re going to see, I think, worse risk of rolling blackouts and trouble keeping the lights on and the electricity going in parts of the world that are lower income and don’t have stable electricity grids to begin with.”
Some countries are already in the dark. South Africa, which is certainly no stranger to load-shedding, has been plagued by rolling blackouts as it grapples with one of its worst-ever energy crises. So has Cuba, which was already suffering under widespread power outages.
To avoid meeting the same fate, other nations have turned back to coal. As the energy crisis deepened in May, India pledged to restart coal mines and ramp up production; in June, India’s imports of coal reached record levels. And the country could be in it for the long haul, Indian Power Minister Raj Kumar Singh warned this month.
These disruptions are part of a larger picture of how Russia’s invasion of Ukraine has roiled commodity markets and upended the global economy, said Helima Croft, an energy expert at RBC Capital Markets. Beyond energy, the two countries also account for a significant proportion of the world’s wheat exports and key inputs for fertilizer production, both of which have been throttled during the war.
“This is not just an oil story or gas story,” Croft said. “This is a story about key agricultural products, a potential global food crisis. This is so potentially politically perilous because it really causes so much misery for so many citizens.”
As European nations shunned Russia’s oil supply, both China and India moved to swallow up its cheaper stock, with Moscow now becoming Beijing’s biggest supplier. But their high consumption doesn’t mean China and India themselves aren’t also facing economic losses as a result of the crunch: Even with Russia’s markdowns, both are paying eye-watering prices for their other energy imports. “There is a financial impact over here that is not fully offset by imports of Russian oil, even if at a deep discount,” said Fernando Ferreira, the director of the Geopolitical Risk Service at the Rapidan Energy Group.
Those markets could face another shock this coming winter, when a full slate of European measures targeting Russian oil is set to kick in. To mitigate a potential spike in prices, the Biden administration has been scrambling to develop a price cap plan for Russian oil—but many obstacles stand in the way.
“We could be looking at more disruption in the energy market and higher prices for oil come December, depending on how these sanctions are enforced,” Croft said.
And experts say the future of the crisis is deeply intertwined with the duration of the Russia-Ukraine war, which shows no signs of stopping. “It’s going to continue as long as this war goes on,” Ferreira said. “We see no indications that we are nearing an off-ramp here in the conflict.”