The world is living through exceptional global geopolitics revolving around energy supplies, particularly Russia’s gas supplies to Europe. This is happening when we are experiencing one of the highest inflation in modern times globally. More recently, Gazprom indefinitely halted the gas supply to Europe through Nord Stream1 Gas Pipeline. These two events happening simultaneously will have far-reaching consequences for the global citizens, whether living in the East or the West, writes Faculty at Brown University in the United States.
Energy costs for domestic and commercial users have skyrocketed, particularly in Europe, including England. Some consumers have experienced a five to 10 folds rise in energy bills compared to last year. This traumatic rise is already causing business closures. If enough supplies had been available, it would not have caused this skyrocketing in the summer. There have been protests in some European Countries against inflation and the cost of living. More recently, a considerable protest erupted in Prague against rising energy costs.
All of this has occurred as the end of summer approaches, and a chilly winter awaits the western hemisphere.
Understanding the matter better
Examining this further reveals that Russia has stopped gas supplies to Germany and most European countries. However, it has increased its gas supply to Hungary, which is supplying Gas to Slovenia, and resumed gas supplies to Slovakia through Ukraine. At the same time, it is still supplying Gas to Moldova and might even grant Moldova a deferral on Oil Payments. How does the European leadership deal with the above countries with continued business ties with Russia remain to be seen?
While there is much political rhetoric on increasing gas storage by the different European leaders, many fail to acknowledge that stored gas alone would not be enough to meet all European countries’ domestic and commercial needs. Similarly, another troubling reality is that most leaders in Europe and England are allocating hundreds of billions of Euros to offset these consumer price shocks. This is the money that most European countries do not have, and this will be done by either money printing or additional debt that will worsen the already existing severe inflation. Most European economies except Germany were in trouble, or some might even say bankrupt, even before the Covid-19 pandemic. A long and cold winter in the Western hemisphere could unravel this even further.
Further East, India and China have continued to buy Russian Oil and Gas, and there have been some reports that they might even be refining Russian energy products and selling them back to the European markets.
There are three likely outcomes here
Gas shortage in Europe can lead to governments rationing Gas usage. This rationing could mean decreased supplies to domestic consumers, small and medium enterprises, and major manufacturing sectors, leading to a massive economic slowdown and job losses, which will eventually create political unrest.
A recession is already predicted for some European economies.
Further borrowing and money printing to shore up these gas supplies will undoubtedly create inflation, further slowing the economy and making life difficult for European consumers.
This economic reality has already been reflected in forex markets where both Euro and GBP have received a battering against the dollar, which sees no stopping.
Thirdly, such political unrest will lead to or can lead to change in governments and the rise of politicians who might be more sympathetic to President Putin’s action.
This reminds us of the 1992 campaign by President Bill Clinton.
“It is the economy, Stupid.”
Fearing unappealing political outcomes, things could get significantly worse quickly.
Squeezing Europe too much can lead to political miscalculations. Any such miscalculation could lead to the expansion of the Ukraine-Russia conflict, which will be disastrous for all of us.
These scenarios will have unpleasant consequences for the developing world, including Pakistan. For example, suppose Europe is hungry for energy in the middle of the winter and willing to buy gas at any price. In that case, this will simply price out countries like Pakistan, Sri Lanka, and other struggling economies that already have landed at the IMF’s doorstep. Moreover, this will significantly blow their productivity, slowing their faltering economies, job losses, and public unrest.
Pakistan, the world’s fifth most populous country, will be particularly at risk and is already energy deficient.
But who will benefit from these significant events? There is no denying that sanctions on Russia are having the opposite effect, and one of the major US allies Europe, is in trouble. European consumers are already feeling the heat, and more pain is on the way! US must address this urgent need by its most significant ally. Otherwise, the European block’s cracks might soon appear with long-term geopolitical consequences.
The law of unintended consequences might present itself with full force, and we might witness a significant geopolitical event soon.
India and China are the other benefactors
It is interesting how the Indians have placed themselves on this three-dimensional chess board and have done it quite successfully. Increased pressure on India might even result in them asking for an even steeper discount on Russian oil and gas which would be a “win-win situation.”
On the other hand, it is pretty unclear how Pakistan will mitigate such risks. No clear and intelligent energy policy is on the horizon. Pakistan urgently needs to secure its energy supplies for the next 12 months and beyond. The road to energy supplies might become increasingly treacherous and rocky as Pakistan could easily be priced out of any future contracts.
The author is a graduate of the University of Oxford’s Said Business School and currently works as Faculty at Brown University in the United States. The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.