The global economy is tumbling into an energy crisis, and there is not a lot that can be done to stop it at this point. Like other energy crises of the last half-century, high prices and rippling economic effects are only the first waves of this unfolding disaster. Historically, energy crises of this magnitude produce enormous geopolitical consequences as well.
The Current Crisis
Today gasoline prices in the US are up nearly 50% nationally compared to one year ago. Natural gas prices in Europe have risen 500%. This week the East European nation of Moldova declared a state of emergency until November 20, as it tried to ease natural gas shortages. In the Netherlands, natural gas prices are expected to climb eight times the levels paid in 2020. At the beginning of this month, China ordered its state-owned energy companies to secure supplies for the winter at all costs. That move in China caused a price surge around the world. In Europe, alone prices briefly climbed 100 euros.
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Efforts to ease prices by increasing supplies appear hopeless. In mid-October, Qatar, the world’s leading supplier of liquified natural gas, said their production was already maxed out. Steelmakers in the UK warned they would halt production if prices were not reduced soon. Steelmakers in Spain already announced a pause in production. China said its factories would switch to coal for energy needs. That move in China, in turn, led to rising prices and shortages on the coal front.
There are many causes behind this rise in energy prices but all boil down to limited supplies. Many parts of the world are learning the costs of taking steps to prevent climate change. The move away from fossil fuels has led to domestic supply shortages. Higher prices as alternative forms of energy still lack the infrastructure to replace fossil fuels at comparative prices.
A recent editorial from Fareed Zakaria noted how even as the US cut fossil fuels in recent years, the Biden administration is urging OPEC to increase oil supplies (fossil fuels) to replace those reduced US domestic supplies. Europe is behaving similarly in its requests for Russia to increase natural gas supplies. These activities and behaviors don’t make sense, but rational thought is often thrown out the window when it comes to surging consumer prices and voters.
Trouble On the Homefront of Voters
In January 2021, a cold front briefly crippled the power grid in parts of Texas, shutting off heat, gasoline, and supply lines in the ordinarily warm climate state. That shock-event appears now as a potential prelude of things to come. The US Energy Information Administration has warned Americans will need to pay significantly higher prices to stay warm this winter. Natural gas bills in the US will climb by 30%, and even up to 50% in areas where winter is particularly cold. Electric heating bills will rise by 6-15%. Propane heating will increase by 54-94%.
These price increases are occurring amid volatile political contexts. It is election season in France, and President Macron is doing all he can to keep energy prices from frustrating voters as they head to the polls in a few months. Meanwhile, right-wing politicians in France are swooping in to leverage the crisis for their own political gains. Even in nations where elections are not pending, many Europeans feel increased frustration toward Russia who is benefitting from rising prices in its natural gas supplies.
In the US, the scars of the 2020 election and January 6 capitol protests have not healed. There is far more resentment lurking beneath the surface than most commentators care to acknowledge. Rising costs at the pump and in-home heating bills will offer little to soothe the anger and distrust felt among many Americans.
Historical Effects of Energy Crises – 1973 and 2008
In the 1970s, the world experienced its first modern energy crisis when the Organization of Arab Petroleum Exporting Countries flexed its strength on the global economy to protest western support of Israel during the Yom Kippur War. Gas lines, surging inflation, and economic upheaval followed. But those economic effects were only the first wave.
Many political and geopolitical consequences that spread throughout the 1970s and 80s can find their origins in the energy crisis of the 1970s. Jimmy Carter’s 1980 loss of the presidency in the US was not totally due to energy prices and economic malaise, but these played critical roles. The new oil wealth brought on by the energy crisis transformed the geopolitics of the Middle East. Saudi billionaires poured gifts into financing the mujahideen in Afghanistan’s jihad against the Soviets. The US, for its part, joined the Saudis in that endeavor determined that stable oil prices were now a pillar of US foreign policy in the Middle East. Even the international response to Saddam Hussein’s invasion of Kuwait in 1990 could be seen as a determination by the global economy leaders to not allow Saddam to disrupt global oil markets and bring about a return to the tumult of the 1970s energy crisis.
The second major energy crisis of the last half-century occurred near the end of George W. Bush’s second term in office. Barak Obama rose to prominence on a wave of national exhaustion from American wars in the Middle East and Afghanistan, as well as the economic meltdown caused by mortgage markets. But many Americans have forgotten the record high gas prices of 2008 that swelled in the background of that election season. High gas prices in the US meant a ripple effect of tumult in other parts of the world that persisted for nearly a decade.
Poor government and mismanagement in many oil-producing economies held devastating consequences as oil wealth filled their treasuries in 2008. In Venezuela, where oil accounted for 96% of the country’s exports, Hugo Chavez squandered away the oil wealth earned during the energy crisis and left the country’s economy devasted when prices returned to normal. In Africa, nations like Algeria and Angola used the boom years of the energy crisis to take out loans to subsidize their increasingly unemployed populations – only to frustrate that population when the subsidies ended. Throughout the Arab world, the new oil wealth was wasted, and when prices returned to normal, unemployment skyrocketed. The frustrations among the unemployed populations of North Africa and the Middle East after the 2008 energy crisis did more to bring about the Arab Spring than local desires for democracy.
Energy crises in the short term mean enormous hardships, but in the long term, energy crises operate as massive disruptors to the status quo. Energy crises expose corruption and incompetence within governments. As those realities are exposed, frustration, protest, and geopolitical instability follow. We are at the beginning of a global energy crisis, but it will roll out in waves, and the world of 2030 will be much different than the world of 2021 due to what is about to occur.
