A few weeks ago, the US bank JP Morgan offered an apocalyptic warning that barely made a ripple outside the financial press. It said that if Russia completely halted oil exports, the shock to the world economy could be so large it would instantly quadruple the price of oil to nearly $400 a barrel. Right now, it’s hovering at around $100 a barrel.
Since the world is still heavily reliant on oil, the shock to the world economy would be far worse than during the 1970s – and plunge us into a deep recession.
But there’s more. This week, Russia also turned off most of its natural gas supplies to Europe, via the Nordstream 1 pipeline as part of planned routine maintenance. It is supposed to be just for a short period, but the German government is seriously worried that Russia could turn off the tap completely. Putin has already begun to cut gas shipments to Europe over the last few months, driving prices continuously higher. It’s not difficult to see how this could play out and why the impact would be catastrophic.
Russia has earned billions of dollars in extra oil and gas payments – thanks to higher prices – since it invaded Ukraine. The prices of oil and gas are set internationally, and in that market Russia is a dominant player. Since world supplies are already stretched to their limits, a ban from Russia would instantly drive up prices to what JP Morgan called “stratospheric” levels.
While the United States has plentiful supplies for itself, Europe is still deeply dependent on Russia. German and Italian industry in particular would be crippled by higher energy costs and thousands of companies would simply go bust. Millions of people would become jobless and their energy bills would skyrocket to unsustainable levels. Millions would be unable to afford to cook food or drive cars.
Putin has already been weaponising fossil fuels. He recently shut off gas supplies to several European countries if they didn’t pay in roubles, eventually forcing them to relent. He has also been cutting off Ukrainian exports of food to drive up prices around the world. Natural gas now rivals oil as the fuel that shapes geopolitics – and there isn’t enough of it to go around, as Bloomberg News put it recently.
Some think he would be foolish to cut off his own source of income, but the Russian government has built up a sufficient buffer of cash to help against that. Moreover, time is running out for Putin: by next year Germany plans to wean itself off its dependency on Russia.
By abruptly shutting off supplies, Putin would deliver a colossal shock to our oil and gas-dependent economies. Stockmarkets would plunge and thousands of companies would go bankrupt from being unable to afford energy supplies. Millions of people would lose their jobs and the West would instantly lose the political will to send money to Ukraine. Putin would win.
But it doesn’t have to be this way. Here’s what we could have done – and still can do. Western governments could issue emergency decrees to develop solar and wind supplies at industrial scale. They could clear the way for new solar and wind farms to be deployed quickly, especially on land. Clean energy farms can be built quickly and cheaply – the longest time is spent on getting permissions and clearance. Getting lots of solar and wind farms built quickly would decarbonise our electricity supply, putting less pressure on gas supplies needed for cooking and heating. We could also have issued more subsidies for buying electric vehicles, reducing our reliance on foreign oil for transportation.
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Instead, Western governments have been astonishingly short-sighted throughout this conflict. We have spent months focusing more on getting new oil and gas supplies. Any new investment into new oil or gas fields – which we do not control – would not come onstream quickly enough. It can take up to a decade to develop a new oil or gas field.
We doubled down on fossil fuels because our political system is still full of oil and gas lobbyists. The Conservative Party alone has received over £1m in donations from oil companies, petrostates, airports and businesses.
It’s worth reminding people that it does not matter how much oil and gas Britain drills out of the North Sea – that reserve is mostly owned by international companies and the prices are controlled by the world’s largest oil and gas suppliers: the US, Saudi Arabia and Russia. We have little autonomy over it.
Time is running out; not just for Putin – but for Europe, too. We have to recognise and prepare for not just the danger from Putin, but from his most powerful weapons: his oil and gas supplies. We need to declare a state of emergency and wean ourselves off this addiction, or millions of people will pay the price with their livelihoods.
