The world is both saddened and shocked by the horrors committed by the Kremlin in Ukraine. The country has fallen prey to a barbaric invasion that has left thousands dead and millions of refugees, mostly women and children, crowding the borders of neighboring countries like Poland and Moldova. Putin’s murderous actions have not gone unpunished by the international community. Indeed, the military war is all over Ukraine with the weapons, tanks, shells and all the atrocities that we have seen with dismay, but there is also the economic, financial and technological war that the West is now fighting against Russia. I think we are all surprised to see how unified NATO members are around this same cause, even if it means losing billions of dollars in revenue and accepting skyrocketing inflation that puts their respective economies in a precarious state.
The economic sanctions include an embargo on Russian oil imposed by Canada, the United States and the United Kingdom, as well as financial sanctions on Russian banks and oligarchs close to the Vladimir Putin regime. These retaliatory measures taken by Western countries against Russia have had an immediate impact on oil prices (a new high since 2008) and on the prices of several raw materials such as wheat, aluminum, coal, copper, nickel and other metals, which are all at record highs. Russia and Ukraine account for nearly 30% of world wheat trade. In addition, Russia alone exports 30% of its oil and 40% of its natural gas to Europe and stays the second largest oil exporter in the world.
Canada and the UK import very little Russian oil, while the US imports 8% of its total consumption from Russia. The embargo will therefore not significantly affect these countries in the oil supply chain. However, the price at the pump is still affected because it is quoted on international markets and is therefore based on supply and demand: the price of a barrel of North Sea Brent for Europe and the price of WTI for North America. With supply being temporarily reduced by sanctions, prices are rising as demand stays strong. However, the greatest challenge will be in Europe. Joe Biden said that he is working closely with Europe to put in place a long-term strategy to reduce their dependence on Russian energy. According to Le Devoir, the EU wants to cut 66% of its natural gas imports from Russia by 2023. The European economy is dependent on oil to function properly, and it is impossible, at least in the short and medium term, to drastically cut its imports of Russian oil.
This is where this war reminds us how urgent it is for several European countries to accelerate their energy transition to renewable energy. This would be a win-win situation for Europe: on the one hand, it would allow for effective action against global warming while preventing Vladimir Putin from getting richer. According to Carbon Tracker, solar and wind energy produced in Europe is cheaper than energy from natural gas. Another report, from Ember, states that renewables were already gaining ground from 2019 to 2021 with green electricity production increasing by 44 TWh per year while natural gas-based electricity is on an annual decline of 23 TWh. Spain and the Netherlands, on the other hand, are burning about 20% less fossil gas to produce their electricity. These trends will only accelerate with the current conflict. The International Energy Agency (IEA) has issued its recommendations to the EU, including a call to accelerate the deployment of new solar and wind projects. It also asks leaders to hand over permits to developers more quickly and to subsidize 20% of the costs of installing solar panels at the residential level. This would double solar energy investments in the short term. Germany, for example, had a goal of being carbon neutral by 2050. This has just been brought forward to 2035. It is in these times of crisis that Germany has noticed the importance of being energy independent. According to Paul Journet of La Presse, the Germans import nearly 50% of their natural gas from Russia.
Even if this is very good news to isolate Russia and thus prevent Putin and his relatives from getting richer, it is still secondary to what the Ukrainian people are experiencing. The solidarity of the West and its allies,in the face of this unjustified war, is surprising. More could be done by sending military and humanitarian aid to the Ukrainians, but also by tightening economic sanctions to prevent the Kremlin from financing itself. This conflict will have opened the eyes of the world on several aspects, including the importance of being energy independent and accelerating the transition to renewable energy.
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