World in the grip of a major energy crisis, says report

Natural gas

Geneva, Aug (Kanaga Raja) — The world is in the grip of a major energy crisis, with countries worldwide affected by extremely high and volatile prices, particularly of fossil fuels, a new brief by the UN Secretary-General’s Global Crisis Response Group (GCRG) on Food, Energy and Finance has said.

The UN brief said that over the preceding two years, the energy market experienced extreme price volatility, such as during the pandemic, when demand was reduced and supply contracted; the ensuing surge in demand outpaced supply.

It said the war in Ukraine has further disrupted fossil fuel supplies and the overall market, in which the Russian Federation is the leading exporter of natural gas and the second largest exporter of oil.

Rising energy prices may price out many developing countries from energy markets, with a high level of impact on the most vulnerable citizens, said the report.

“Such a situation is already impacting hard-won gains in the provision of access to energy and the reduction of energy poverty, and progress had already been set back due to the pandemic.”

This dynamic is compounded by the food and finance crises also experienced in these countries due to the war in Ukraine and the pandemic, which have placed significant social and fiscal pressure on countries, said the report.

A potential “scramble for fuel”, in which only those countries paying the highest price can gain access, would be devastating for a multilateral system based on trust and proportionality, it cautioned.

“The war in Ukraine continues to have a devastating impact on the people of that country. Civilians are dying in the most tragic circumstances every day. Millions of lives have been destroyed or put on hold,” said UN Secretary-General Antonio Guterres at the launch of the report in New York on 3 August.

“This war is senseless, and we must all do everything in our power to bring it to an end through a negotiated solution in line with the UN Charter and international law,” he added.

But the war is also having a huge and multi-dimensional impact far beyond Ukraine, through a three-fold crisis of access to food, energy and finance, said Mr Guterres.

Household budgets everywhere are feeling the pinch from high food, transport and energy prices, fueled by climate breakdown and war.

He said that this threatens a starvation crisis for the poorest households, and severe cutbacks for those on average incomes.

Many developing countries are drowning in debt, without access to finance, and struggling to recover from the COVID-19 pandemic and could go over the brink, he added.

“We are already seeing the warning signs of a wave of economic, social and political upheaval that would leave no country untouched,” said the Secretary-General.

Highlighting the UN brief which is focusing on the energy crisis, the Secretary-General said that it is immoral for oil and gas companies to be making record profits from this energy crisis on the backs of the poorest people and communities and at a massive cost to the climate.

The combined profits of the largest energy companies in the first quarter of this year are close to $100 billion, he said.

Mr Guterres urged all governments to tax these excessive profits and use the funds to support the most vulnerable people through these difficult times.

He also urged people everywhere to send a clear message to the fossil fuel industry and their financiers that “this grotesque greed is punishing the poorest and most vulnerable people, while destroying our only common home, the planet.”

UNCTAD Secretary-General Ms Rebeca Grynspan, who coordinates the GCRG’s briefs, said at the launch of the UN report, that decisions by the countries that consume the most energy have global implications for the rest of the world, and especially for the smallest and poorest countries that have little influence in these markets.

She said after two years of a pandemic that was marked by extreme inequality, especially in vaccines, the world cannot afford another scramble, this time on fuels.

According to the UN brief, more people are now forecast to be pushed into food insecurity and extreme poverty by the end of 2022.

The most recent operational programming update from the World Food Programme (WFP) estimates that in 2022, 345 million people will be acutely food insecure or at a high risk of food insecurity in 82 countries with a WFP operational presence, implying an increase of 47 million acutely hungry people due to the ripple effects of the war in Ukraine in all its dimensions.

Meanwhile, in early July, the United Nations Development Programme estimated that up to 71 million people could have already been pushed into poverty in the three months since the start of the war, with hotspots in the Balkans, Caspian Sea region and sub-Saharan Africa, particularly the Sahel.

As citizens in many countries begin to grapple with the cost-of-living crisis, an intensification of social protests and riots has been recorded, said the UN brief.

According to the Armed Conflict Location and Event Data Project, the number of riots worldwide increased slightly between the first and the second quarters of 2022.

The brief said that prices of commodities in global markets are still high but stabilizing. The food price index of the Food and Agriculture Organization of the United Nations (FAO) declined slightly in June 2022 and is down by about 3.3 per cent from its historic high in March.

Crude oil prices dipped below the $100 per barrel mark at the beginning of July and have since remained near that level.

“Agriculture and commodity spot indexes are now close to, and some days below, pre-war levels. Shipping costs have also slowly begun to decrease, especially for bunker and tanker ships that are the most highly correlated with commodities and that have contributed considerably to the increase in consumer prices and import costs across the board.”

The report said the fall in prices might have been influenced by bumper crops in Australia, Canada, the Russian Federation and the United States of America, as well as by optimism following the signing on 15 July 2022 of the agreement between the Russian Federation, Turkiye and Ukraine, under the auspices of the United Nations, to re-integrate grains and sunflower oil from Ukraine into global markets and facilitate unimpeded access to food and fertilizers from the Russian Federation which had been a fundamental recommendation by GCRG.

It said recent moves may also signal less uncertainty in commodity trading and transport markets. In addition, as at 30 June 2022, there were 27 countries with 40 measures restricting food exports; at present, there are 25 countries with around 39 measures affecting over 8 per cent of global trade.

In this regard, the situation has ameliorated, yet it could be further improved, said the UN brief.

It said that commodity prices remain at a high level despite recent falls. The high price volatility witnessed since the pandemic, particularly in 2022, suggests that prices remain at high levels and could rise yet again.

“In addition, although the prices of some commodities have fallen, due to high inflation, the situation has remained tight for billions of people, whose socioeconomic prospects have deteriorated as a result.”

There are serious concerns about potential stagflation scenarios (low growth and high inflation) in the second half of 2022 and in 2023, said the report.

It said in developing countries, exposure to financial shocks is increasing despite falling commodity prices. Energy markets in particular are under stress, as the heating season approaches in the northern hemisphere.

The report also said that inflation continued to accelerate worldwide in July 2022, with strong correlations with the income levels of countries; even while inflation is breaking multi-decade records in advanced economies, developing countries and the least developed countries, in particular, are experiencing even higher levels of inflation.

However, the report said as food and, especially, energy prices are a major component of recent inflation metrics in many economies, it is possible that the metrics in some large economies may stabilize in the near future.

Food prices have fallen, yet are still high, above pre-pandemic levels, and the fertilizer shortage remains a concern, the report said.

“Prices were already high at the beginning of January 2022, and increases have been broad based, affecting almost all food categories.”

The UN brief noted that since the beginning of 2020, the vegetable oil price index has more than doubled, that of cereals has increased by over 60 per cent and that of sugar by over 50 per cent.

The report said that if fertilizer shortages continue, the food access crisis in 2022 will be exacerbated by a food availability crisis in 2023.

The consequences of the crisis include worsening nutrition and health outcomes that have been building up over the last two years, it added.

In 2020, almost 3.1 billion people could not afford a healthy diet, up by 112 million compared with 2019, due to the impact of the COVID-19 pandemic and related measures.

“The cost-of-living crisis, and soaring food prices, make it even more challenging for increasing numbers of people to afford a minimally nutritious and healthy diet.”

The report said before the outbreak of the war in Ukraine, the number of chronically undernourished people had already grown by about 150 million since 2019, with up to 828 million people in 2021 affected by chronic hunger (long-term or persistent inability to meet food consumption requirements).

In connection with such persistent inadequate consumption, there is also a significant and widening gender gap; in 2021, the gender gap in food insecurity was one percentage point higher than in 2020, with 31.9 per cent of women worldwide moderately or severely food insecure, compared with 27.6 per cent of men.

Projections are that in 2022, the number of vulnerable women for whom WFP will provide essential prevention and treatment services has increased by almost 50 per cent, said the report.

There are growing fears of a looming economic slowdown that, coupled with high inflation, might imply a return to stagflation at the end of 2022 or in 2023, it added.

It said consumer price indices keep climbing, consumer sentiment is deteriorating and leading industrial indicators in many countries suggest a slowdown in production.

“However, the signals are not altogether clear: unemployment is still falling in some major markets; and UNCTAD model data on gross domestic product show signals of a slowdown but this has yet to gather pace.”

Stagflation would ultimately accelerate the cost-of-living crisis by reducing household income, straining countries’ fiscal spaces and increasing financial market pressures, the report cautioned.

It said financial conditions in developing countries are still worsening despite the fall in commodity prices, due to a strengthening United States dollar.

Since the beginning of 2022, the currencies of developing economies have depreciated by 5.1 per cent against the dollar, with a depreciation of 2.1 per cent in June.

The report said that in the same period, the yield of sovereign bonds from these economies increased by 162 basis points, with an increase of 64 basis points in June. As a result, it added, developing country debts and import bills are coming under further pressure.

By June 2022, the trade deficit of low-income countries was about $2.5 billion higher than it might have been if the prices of key commodities had stayed at pre-war levels, it said.

In addition, in the 62 most vulnerable countries, food import bills have increased by $24.6 billion since the start of the war.

The International Monetary Fund (IMF) now suggests that not only are 60 per cent of low-income countries in debt distress or facing a high risk of debt distress, but so also are 30 per cent of middle-income countries.

The report said that energy prices are still high, above pre-war levels, suggesting further turmoil in energy markets, with significant global implications.

The report said energy policy measures must balance the need for urgency and long-term sustainable development.

In this context, it said that in the short-term, countries, especially developed countries, must seek to manage energy demand. This may be done through the implementation of new technologies and behavioural changes related to the use of heating, cooling and mobility.

Medium-term and long-term measures in government energy policy and investment must align with the Sustainable Development Goals (SDGs) and the Paris Agreement, it added. - Third World Network