Every crisis is different. But practically, all public responses to crisis are the same. Whether a global war or demand/supply shock doesn’t matter for the public. They receive the bill from the local company. That is why it is easy to weaponize energy internationally. At the end of the day, the crisis actors can be invisible from the local perspective, and all blame is shifted to local actors. It always happens this way will be that way.
But now, there is an interesting political context hard to ignore. West can be simultaneously tested by Russia in Ukraine and China in the Pacific. Meanwhile, Europeans are saving the planet because from their angle, and it is not the West being tested. Some rather see it as a test of the strength of Pax Anglo-Saxonica. This explains part of the inertia on the European side.
But there are dimensions to how this crisis may evolve. The first parameter is the duration. From an energy point of view, winter and summer energy prices are more problematic. During the spring and autumn, demand is lower. Therefore, we see price peaks in winter or summer. This is also the most vulnerable period for consumers. The car sales in the western world are more SUVs-bigger vehicles. They may be much more efficient, but they are heavier. The car stock is a product of post-2015 low prices: 50-70$/barrel. Short spikes are not a concern. Sustaining high prices is an invitation for consumer discomfort. And consumer reflects this discontent to the closest authority: Local politicians. US mid-term elections are in November 2022.
The second parameter is the depth of a crisis. Western historical leaders are well studied in the eastern part of the world. It is tragic sometimes these words are referenced more by the rest of the world than their originating countries. One such saying is Churchill’s “Never let a good crisis go to waste.” We generally assume positively that a crisis is a chance for progress. What if it is otherwise? Like, use a crisis to start and deepen another crisis. But why? Because these things happen very rarely and if you have the information on the future of it then you can play with it with some bruises to yourself too.
Only Russia knows whether it can increase oil production after May, when demand will kick in. China has made huge stocks of various commodities. Also, China has tested domestic market measures on price limitations since last winter. Russian foreign currency reserves are at their highest level. On the other hand, OECD and US stocks are the lowest of the last five years. Numbers show that one side is prepared, the other is completely empty-handed. We have to be careful about how we end up like this. Saudi Arabia and OPEC+ specifically targeted oil stocks in the OECD because they believed this is a major determinant of price.
There is also another story called food prices. Fertilizer prices are even denting western farmers. A drop in agriculture production will impact everyone. So production and producers will have the final say. Is this again lead us to a semi-global recession with high prices?
The third parameter is how the actors will behave. But this may not be the right question. Because there are central actors like the US, EU, Russia, and China, and there are peripheral actors like North Korea Iran. The peripheral actors may also want a victory for themselves in this war with cyber capabilities targeting infrastructure because every virtual/physical victory is a positive moral for their own domestic public and military.
The weaponization of energy is a perfect crime. Global actor shutdowns the tap, but the local public blame local politicians and punish them. Then these local punishments create more local volatilities. But these local resentments are silenced by some other victories, whether invented or deep-frozen before. Energy is a dangerous game in times of short-sightedness and the age of disinformation wars. Luckily we are not in one of them.