Oil prices are already comfortably perched above $100 and are exerting inflationary pressure on economies across the world.
Although the economic sanctions by the West exempted energy imports from Russia, secondary sanctions especially those involving financial and logistics services are making it difficult to sustain oil and gas exports from Russia.
Europe has come up with definite plans to rapidly reduce dependence on Russian oil and gas by accelerating transition to renewable energy which includes more investments in nuclear energy.
One month after Russian invasion of Ukraine and the subsequent economic sanctions imposed by the West on Russia, a number of impacts are already being experienced in energy dynamics, economic performance, climate change strategies, and geopolitics.
Oil prices are already comfortably perched above $100 and are exerting inflationary pressure on economies across the world. The invasion is putting pressure on post-Covid economic recovery which was already work in progress prior to the Russian invasion.
Although the economic sanctions by the West exempted energy imports from Russia, secondary sanctions especially those involving financial and logistics services are making it difficult to sustain oil and gas exports from Russia, putting pressure on global oil supplies.
Whatever Russian oil and gas not moved into the market there will be a corresponding deficit and hardening of prices.
OPEC is apparently not willing to pump more oil than previously planned. However, some of the non-OPEC suppliers appear ready to increase production to either cash-in on new high prices, or in solidarity with the West’s plans to support the enforcement of sanctions against Russia, and to also support EU to supplement oil and gas supplies as the group reduces reliance on Russian fossil fuels .
But it takes time to ramp up new capacity for oil and gas production and distribution, causing lags in supply which will prompt price hikes .
Europe has come up with definite plans to rapidly reduce dependence on Russian oil and gas by accelerating transition to renewable energy which includes more investments in nuclear energy.
Europe which historically receives about 40 per cent of its gas requirements from Russia, is already fast-tracking investments in facilities to receive liquefied natural gas (LNG) imported from non-Russian sources.
Specifically, the UK is now planning to go back to the North Sea to dig for more oil and gas to meet deficits caused by the planned boycott of Russian oil and gas imports.
There is debate whether the Ukrainian crisis will upset the pace of energy transition. As long as new oil and gas production goes towards replacing what Russia cannot put into the market, then the “green” journey remains more or less on course as it will be a molecule of hydrocarbon replacing another.
Indeed, it may be a quicker energy transition if Europe accelerates renewable energy implementation to reduce dependence on Russian fossil fuels.
Many oil companies are cognizant of the fact that the net effect of the Ukrainian crisis on global energy transition may be negligible in the medium to long term, and for this reason, they are not rushing to put more capital into new oil production.
Somehow, global oil markets and logistics will rearrange themselves to ensure that oil and gas supplies from whichever source reach their demand destinations, albeit at price premiums.
The intended outcomes of the sanctions are to economically punish Russia for invading Ukraine. However, the unintended consequences and impacts on the world will be far-reaching.
High energy costs across the world are already slowing down post-Covid economic recovery while fuelling inflation which may lead to a global economic recession.
Beyond the energy sector, the world will definitely suffer from the other impacts of disrupted trade and supply of grains and critical minerals from both Ukraine and Russia.
Interruption of global supply chains for the grains is already impacting worldwide food security, while interruption of critical minerals supplies will affect industrial and technical sectors.
In respect of geopolitics, the Ukrainian crisis has only accelerated what was already evolving into a new “cold war” between the West and an alliance fronted by Russia and China, each bloc seeking global political, economic, and also military power.
We are already witnessing early signs of cold war struggles by the way nations are voting on sensitive global issues at the UN, guided by divisive self-serving diplomacy.
What is also at risk is globalisation of free trade and investments which we have seen excel over the past three decades. Weakened globalisation will affect smooth flow of global capital and trade, and the Third World will not be spared.
Kenya is already experiencing full impacts of the Ukrainian war with food security in jeopardy as imports of wheat from Black Sea ports are affected. The authorities have already attributed the current high pump prices to the war.
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