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Global Headwinds are Coming

Global Headwinds are Coming

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AROUND LATE April/ early May 2020, the price per barrel of West Texas Intermediate (WTI) oil had fallen to negative US$40. At the time of writing, WTI oil prices were now trading at $82.84, an increase of over 300% compared to the reference point in 2020. Natural gas prices are also soaring around the world, hitting record highs in Europe and Asia and doubling in the United States (US) compared to a year ago. The world is also battling a somewhat related global supply chain and logistics crisis, which, when added to the high energy prices, have set us on a path of major economic uncertainty.

The International Energy Agency (IEA) has recently indicated that the natural gas price spike in Europe has been driven by a confluence of factors, including strong demand, tighter-than-expected supply, cold temperatures last winter and “lower- than-usual availability of wind energy.” Meanwhile, in what is possibly a geo-political development, gas exports from Russia to north-west Europe have also been lower. Furthermore, hot weather in Asia has resulted in more gas being used for air-conditioning. These are all contributing factors to the ballooning cost of energy on world markets.

There is also a link between the energy problem and what is fast becoming a global supply chain and logistics crisis. Supply chains and logistics are vital cogs in the wheel that turns global trade. Products are on supermarket and store shelves largely because well-oiled supply chain and logistics systems place them there. This includes everything from the moment a product leaves the conveyor belt, is transported to a port, shipped overseas, cleared and then stocked on a shelf.

In Europe, the energy crisis is forcing some factories to suspend operations. In China, largely regarded as the world’s factory, there have been power shortages that have led to blackouts and closed factories. This has had a knock-on effect on global supply chains and logistics.

Beyond the energy crisis, there are other factors affecting global supply chains and logistics. In the United Kingdom (UK), there is currently a shortage of truck drivers and backlogs at its ports. In the US and Germany, there is also a shortage of truckers. These are in addition to the pressures already unleashed by the COVID-19 pandemic which have led to shortages of raw materials and workers.

The energy, supply chain and logistics crises could cripple the fragile global economic recovery from the shock of COVID-19. Another jolt to the global economy may impose further pressures on the social safety nets of governments. Some countries may even be forced to borrow more money to try to dig themselves out of the crisis, a reality which would only inflate debt levels.

The energy crisis also places into sharper focus the need for countries and firms to pursue energy independence, which can be achieved through widely available renewables, notably solar power. Energy represents a huge cost for households and businesses. Therefore, volatility in energy prices creates great uncertainty all around. Renewables can therefore provide more stability in addition to benefits for consumers and businesses through lower prices.

The problems highlighted above are global in character, but very local in terms of impact. These problems are apt reminders that we live in an interconnected world. As such, we cannot divorce ourselves from the happenings elsewhere. What is also of concern is that there are potentially greater problems on the horizons and things may get worse before they get better.