Since the end of 2019, the world has experienced a rapid increase in energy prices due to the COVID-19 pandemic,
as people were trapped inside their homes due to fear of infection, the use of cars, and other types of transportation ground to a halt.
The pandemic caused a massive drop in oil production(supply).
2021 came with critical supply shortages and drastically increased prices of oil, gas, and energy markets for Global economies, which lead to a surge in energy prices all over the world. This was a result of people leaving their homes for normal day-to-day life as the pandemic was effectively over and everyone was getting vaccinated which outpaced the production of oil and natural gas at the time.
The situation has escalated dramatically to a full-blown energy crisis because of the Russian invasion of Ukraine. The International Energy Agency (IEA) said the world faces its first "truly global energy crisis" as a result. Higher energy prices have contributed to disturbingly elevated levels of inflation.
According to the BBC, oil prices have hit their highest since 2008.
The effects of this crisis have been felt dearly in developed countries around the world, the circumstances for developing & emerging countries are quite different.
In countries like India, Sri Lanka and African countries where the household budget for food and energy is already large, higher fuel prices have contributed to greater poverty and increased inequality.
The conflict has worsened the inflation and growth balance of the Indian economy. India’s crude prices raised from 80$ a barrel in 2022-23 to 110$ a barrel in the six months Russia invaded Ukraine in February 2022. However, India’s circumstances have been better than most countries which have been affected by the disruption in the supply chains and the subsequent inflation.
According to Birol, LNG prices in the Asia region are five times higher than the last five years on average, and next year will see more challenges.
Asian, African, and Latin American countries will be affected by higher energy prices because of their weaker currencies.
According to the Indian External Affairs Minister Dr. S. Jaishankar “We are a USD 2,000 per capita economy. The price of oil is breaking our back”.
As a result of the Russian invasion of Ukraine, many western nations have sanctioned Russia for its aggressive actions and put oil embargoes on it.
On 3rd December 2022, the G7 nations also put a price cap on Russian oil of 60$ per barrel which is being enforced by an insurance ban on any ship crossing the waters of G7 nations.
Now shipowners will be required to check the price of Russian energy cargoes on board the ships they own and if the price is above 60$ a barrel, it will result in an insurance ban on the ship.
The price cap and insurance ban have resulted in Russia having difficulty in supplying energy products to countries that haven’t even imposed sanctions such as India and China.
The European Union was the biggest consumer of Russian oil but now since the invasion as the EU has sought to replace Russian gas, it drove up prices of American, Australian, and Qatari liquefied natural gas (LNG), raising prices and diverting supply away from historical LNG customers in Asia.
As gas prices usually set the price at which electricity is sold, power prices soared in the Euro region multifold.
The IEA predicts that Russia's share of global energy trade will fall from 20% currently to 13% by 2030.
Although western sanctions have barely caused a dent in Russian oil being sold to India and China, the IEA discovered that the war in Ukraine has sped up investment in greener energy sources.
America’s Inflation Reduction Act, the EU’s Fit for 55 packages and repowered plan, Japan’s Green Transformation program, and ambitious clean-energy targets in China and India are all contributing.
The measures above should drive a decline in carbon-dioxide emissions to boost the deployment of solar and wind power. At the same time, they are boosting research and development into batteries and extending the lives of nuclear plants.
In the beginning, Europe had its task cut out in striking a balance between defunding Russia’s war in Ukraine and ensuring that it doesn’t freeze itself.
Now Europe is in the clear when it comes to a winter freeze and plans to cut out Russian oil from its portfolio completely. On February 5th, Europe imposed a ban on imports of Russian oil products, and a price cap on international shipments of diesel and fuel oil from the country.
The American viewpoint on it has always been to counter Russia when it comes to energy and technology. Since the start of the invasion, the United States and its allies have placed sanctions to restrict Russia's access to advanced technology, which has damaged the Russian weapons industry's ability to produce and stockpile weapons to replace those that have been destroyed in the war.
At its first face-to-face meeting since the commencement of the COVID-19 crisis, OPEC+ cut oil production by 2 million barrels per day starting at the end of 2022, noting that the decision taken was based on the "uncertainty that surrounds the global economic and oil market outlooks.
Rising oil prices increased inflation and the price of living in countries where oil is purchased in US currency.
This production cut had a tremendous impact on the US, causing inflation to skyrocket and damaging US President Joe Biden's already low approval ratings.
The agreed-upon reduction sparked criticism from the United States. The Biden administration characterised them as "shortsighted," claiming that it will harm low- and middle-income countries by raising energy prices.
Although Russia's invasion of Ukraine has caused havoc on the world economy, particularly the EU economy, energy corporations have gained significantly.
This column proposes a modern method of taxing the excess profits of the energy business.
Targeting rises in market capitalization would result in a tax that is significantly more difficult to avoid than normal excess profit taxes while allowing rents to be captured regardless of where multinational corporations report their earnings. Experts predict that the EU could collect roughly €80 billion in revenue with a 33% tax rate.
TotalEnergies of France announced net profits of $20.5 billion in 2022 and a hefty dividend payout to shareholders. Campaigners have slammed the company's "superprofits," which come at a time when the energy crisis has left millions of people in France and Europe without gasoline.
BP announced $27.7 billion in net profits for 2022 across the Channel. The country's Labour opposition dubbed the income spike "the windfalls of war," and urged that Prime Minister Rishi Sunak broaden and tighten the United Kingdom's existing windfall tax on firms producing oil and gas on British soil. Meanwhile, Equinor of Norway posted record net profits of $28.7 billion in a year in which it surpassed Russia as the EU's top gas supplier.