Since Russia invaded Ukraine in February of 2022, the world has had to grapple with how to react to such a significant show of force that hasn’t been seen in decades.
While some areas of the world continue to import energy commodities from Russia, others have placed heavy sanctions on the country to deter the Russian government from advancing its plans to take over Ukraine.
This war on Ukraine and the sanctions put in place because of it have impacted the world in ways that are still unfolding day by day.
As the EU (including the United Kingdom), once a key power in the geopolitical sphere, struggles to keep energy costs affordable and resources accessible, the rest of the world is feeling the impact.
Let’s dive deeper into how the world has responded to these tumultuous times and how that is impacting people all over the globe.
EXPLAINING THE EUROPEAN ENERGY CRISIS
How has Europe ended up in its current situation?
In “normal” times, Europe’s energy costs about 2% of the GDP. However, it has now reached about 12% of the GDP! This is almost entirely due to Russia’s invasion of Ukraine but was also exacerbated by summer heatwaves and droughts.
Until 2021, the EU imported 40% of its natural gas and a sizable amount of oil and coal from Russia. With sanctions now in place and more that will be effective later this year and early 2023, the EU is struggling to maintain enough resources for its citizens and is falling victim to high energy costs due to inflation.
These high energy costs mean that those living in the EU have to consider if they’ll be able to heat their homes this winter and if their economy will survive. With more and more European industries scaling back operations or just shutting down completely, Europe will likely experience a deep recession in the next couple of years.
HOW DOES THIS IMPACT THE GEOPOLITICAL SPHERE?
Since 2008, it can be said that the geopolitical atmosphere has been influenced by four main powers: The United States, European Union, Russia, and China. However, economic shifts over the years, compounded by Russia’s war on Ukraine, are changing each of these powers’ influence.
In 2009, the EU’s share of global GDP was higher than those of the U.S. and China. However, as the U.S. and especially Chinese economies bounced back relatively successfully from the 2008 recession, Europe’s economy has been slow to uptake, making its share of global GDP the lowest out of the three.
That being said, Russia’s spot as a world power may be in even more jeopardy than the EU’s.
While it’s true that Russia is still taking in significant revenues from exporting oil and gas to Asia, its economy is still likely to decline even after the conflict with Ukraine ends. This is because the rest of Russia’s economy is struggling, and the western sanctions will only cripple its energy sector more.
Russia could continue selling to Asia, but most of Russia’s pipelines and energy infrastructure are built for European exports. Pivoting those operations east would be difficult and extremely costly. This would mean that any investment in new infrastructure Russia would need to export more oil and gas to China would be dictated by Beijing’s financial terms, effectively pushing Russia into a more junior role.
This will leave the United States and China as the world’s leading superpowers, but with Europe sidelined from world affairs, U.S. interests will be put at risk.
CONSEQUENCES OF EUROPE STOCKPILING FUEL
While Norway used to export nearly 60% of its oil to Asia, it has now almost all but stopped, and America has begun reallocating more natural gas and oil exports to the EU rather than countries like South Korea, Asia’s largest importer of American crude, who saw shipments from North American producers decline by 9.9%.
With winter looming in the distance, the EU has begun stockpiling natural gas, oil, and coal to offset any adverse weather. While these actions will negatively impact many countries and economies, the Europeans outbidding customers for more fuel, causing prices around the world to surge, will affect low-income energy importers the most.
South Asia, Africa, and Latin America, which are already struggling with food shortages and high prices for what is available, will be hard hit.
WHAT DOES THE FUTURE HOLD?
Ultimately, the futures of the EU geopolitical sphere and other countries that have traditionally relied on the global import and export of Russian fuel are dependent on many factors that will be influenced by the Russian and Ukraine conflict, inflation, and the world’s major superpowers’ ability to maintain a semblance of market stability during these times of political and financial unrest.
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