Recently, international oil prices have fallen continuously. WTI and Brent crude futures have previously given back all gains since the Russian-Ukrainian conflict at the end of February. The energy crisis that has left the international community fretting, showing signs of abating? Not really.
Recently, the United Nations Global Food, Energy and Financial Crisis Response Group (GCRG) released a third report warning that soaring energy prices are exacerbating the cost of living crisis for hundreds of millions of people.
The United Nations Global Crisis Response Team, together with the United Nations regional economic commissions, conducted a global vulnerability assessment of countries' capacities to respond to crises in all its aspects. The assessment confirms the widespread distribution of vulnerabilities: 94 countries with some 1.6 billion people are severely exposed to at least one aspect of the crisis and lack good coping capacity. Of these, 1.2 billion people live in "perfect storm" countries, countries that are severely exposed to financial, food and energy crises at the same time.
UN Secretary-General António Guterres stressed that in the face of the recent soaring prices of related products, the world's poorest people are facing a hunger crisis, some countries are in debt crisis, and large oil and gas companies are making record profits from the energy crisis.
In March, with the assistance of the UN Secretariat, Guterres formed the UN Global Food, Energy and Financial Crisis Response Team to study the situation and find solutions. The third report, released this time, focuses on the energy crisis.
Be wary of potential "energy wars"
Since the Russian-Ukrainian conflict at the end of February, the global commodity market has changed overnight. World Bank data shows energy prices have seen their biggest increase since the 1973 oil crisis; Price increases for food commodities and fertilizers were the highest since 2008.
As an example in the report, the GCRG said that high fuel and fertilizer prices increase farmers' production costs, which can lead to higher food prices and lower agricultural production, thereby reducing household incomes, exacerbating poverty and reducing people's living standards. Rising prices have led countries to gravitate towards higher lending rates, increasing borrowing costs while devaluing their currencies, thereby making food and energy imports more expensive, and so on. "These phenomena have a major impact on social cohesion, the financial system and global peace and security."
Data from the United Nations Conference on Trade and Development shows that global inflation has continued to climb since February. Inflation in Europe and Central Asia has risen most significantly, with the consumer price index (CPI) soaring from 10% before February to more than 15% today. Even East Asia and the Pacific, where the CPI base is the lowest among the regions, rose to around 5 percent year-on-year.
The World Bank also warned in its latest Commodity Outlook report that global trade, production and consumption patterns have changed in response to the Russian-Ukrainian conflict, which will keep global prices at historic high levels until the end of 2024. Affected by geopolitical conflicts, world trade is shifting to a more costly model, and the global clean energy transition may also be delayed.
In the food sector, the benchmark index of food commodity prices released by the Food and Agriculture Organization of the United Nations (FAO) in July fell from its all-time high in March, but it is still higher than the same period last year. FAO Chief Economist Torrero said: "Uncertainty remains widespread, including high fertilizer prices that could affect future production prospects and farmers' livelihoods, the gloomy global economic outlook and changes in currency trends. All of these factors pose serious pressures on global food security. ”
In this regard, the GCRG pointed out in the report that the global cost crisis has caused major setbacks in access to affordable energy and sustainable development in affected countries, and the real income of ordinary households has lost 1.5 percentage points. The 15 economies with loss margins of more than 1.5 percentage points were developing or less developed countries, such as Armenia, where real household income fell by 7.7 percentage points from last year, the highest decline, followed by Georgia in Central Asia, which fell by 5.53 percentage points.
The report worries that rising energy costs could deprive many developing and underdeveloped economies of their energy markets. "These economies have borne the brunt of the cost-of-living crisis, and they have experienced many setbacks in terms of access to energy and sustainable development since the pandemic."
"In the future, if the cost of energy continues to rise, a potential 'energy war' will emerge." "Only countries that can afford the highest prices can access energy, and this will only further trap developing and less developed countries in the cycle of poverty," the report reads. ”
How to deal with the "expensive energy future"
According to the World Bank, energy prices will rise by more than 50% in 2022, followed by a pullback in 2023 and 2024; Prices of non-energy products, including agricultural products and metals, are expected to rise nearly 20 percent in 2022 and fall back in the years since.
"Still, commodity prices are expected to remain high, well above the average of the last five years." According to the World Bank, "If the Russian-Ukrainian conflict is protracted, or if the sanctions against Russia are increased, the global price level may be higher and more volatile than current forecasts." ”
The United Nations believes that there is not much time left for the international community to respond to this cost crisis. "If insufficient action is not taken at this time, the crisis will continue to worsen; Failure to reconcile urgency and sustainability could force countries towards a high-emission and expensive energy future. ”
At present, a number of European countries, led by Germany, have begun to return to coal resources in response to high natural gas prices and fill the gap after Russia's lack of energy. According to the GCRG, this is not a long-term solution, as there is little room for operation to replace war-affected energy products (oil, gas) with other fossil fuels (such as coal). "The price of all fuels is generally rising at the moment."
For an "expensive energy future," the GCRG recommends that governments take a multi-pronged approach and need fiscal space to support their most vulnerable groups to avoid worsening energy poverty or a complete loss of access to energy. For example, in the field of energy security, increase investment in the production of renewable energy sources such as solar energy, wind energy and hydrogen; Develop energy market demand management measures and implement energy demand management pilots in Europe to cope with the arrival of winter; At the same time, we will promote energy transformation and get rid of energy shortages.
In the financial sector, it is recommended to introduce publicly funded cash transfers and tax rebates to protect vulnerable communities everywhere. At the same time, the international financial mechanism needs to be adequately funded and function quickly; Multilateral development banks must capitalize and increase financing opportunities for countries, including through more flexible and concessional lending rates, expanding borrowing limits and enabling all crisis lending instruments.
In the area of food supply, there is an urgent need to stabilize market prices; Resumption of grain production and exports from Ukraine and Russia; Monitor food, energy hoarding and speculation in the market; Avoid unnecessary trade restrictions, etc.