Russia-Ukraine war has altered the global economy, energy landscapes

war

Effects of shelling in Chasiv Yar, near Bakhmut, amid the Russian invasion of Ukraine on March 21, 2023. PHOTO | AFP

It is two years since Russia invaded Ukraine, and within this time the world has experienced significant energy and economic changes. The economic sanctions imposed on Russia by USA and Europe reduced Russian oil and gas supplies to Europe, followed by global supply chain re-arrangements that resulted in oil price increases from $70s to above $80 and peaking above $100 at some point.

Inflation shot up across the world, with central banks increasing interest rates which weakened many currencies around the world. In Kenya, this is the economic situation that the new Kenya Kwanza government found —high inflation, weakening shilling, and a food security crisis exacerbated by restrictions on grain exports from Ukrainian granaries at a time when Kenya was under an extended drought.

Russia quickly re-routed most of its oil and gas exports to China and India at significantly discounted prices. The USA directly benefited from the war by increasing its oil and gas production to supply European deficits. USA has since become the leading global producer of oil. African natural gas producers and LNG exporters, which include Mozambique, North Africa and West Africa producers, also benefited. Also, Tanzania's natural gas projects and the new discoveries offshore Namibia have since the war increased their market values.

The Russia-Ukraine war significantly disrupted the climate momentum achieved a few months earlier at the 2021 Glasgow COP26 forum, as countries around the world prioritised energy security and economic stability over climate agenda.

Energy transition was subsequently redefined to include sufficient oil and gas supplies, with the oil lobby gaining considerable influence in setting the pace for energy transition. National climate policies and strategies have over the past two years undergone realignment to prioritise energy security and economic stability, entering a new era of what is popularly described by governments and businesses as “sustainable” development.

The war has triggered new geopolitical alliances which have seen a rise in diplomatic overtures in developing countries. Around Russia, we have the usual allies China and Iran, and the hastily expanded BRICS grouping which now includes more African and Arab countries. As the Russia-Ukraine war enters the third year, it looks like it will be a stalemate whose final shape will be determined by the outcomes of ongoing USA electoral politics.

The Israeli/Palestinian war further south has definitely diverted global attention from the war in Ukraine. However, going forward, the two wars will definitely redefine a new geopolitical architecture.

The writer is a petroleum consultant. [email protected]

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