The Russia-Ukraine war is likely to have a persistent effect on the future path of the global energy system, increasing the focus on energy security, weakening economic growth, and changing the mix of energy supplies.
The past year has been dominated by the terrible consequences of the Russia-Ukraine war and its awful toll on lives and communities. Over and above the human tragedy, the war is likely to have significant social, economic, and political implications.
From an energy perspective, this year’s Outlook has modelled the impact of the Russia-Ukraine war as operating through three main channels: energy security, economic growth, and composition of global energy supplies. At the time of writing, the war is continuing with no end in sight; as such this analysis should be treated as preliminary and subject to change depending on future developments.
Heightened energy security concerns
The increased focus on energy security triggered by concerns about energy shortages and vulnerability to geopolitical events is assumed to cause countries and regions to strive to reduce their dependency on imported energy and instead consume more domestically produced energy. It also gives greater incentive to improve energy efficiency, reducing the need for all types of energy.
Weaker economic growth
The higher food and energy prices associated with the Russia-Ukraine war have contributed to a sharp slowing in global economic growth. The direct economic impact of this commodity price shock is set to persist for the next few years. Further out, the war is assumed to reduce somewhat the pace of global integration and trade, as countries and regions heighten their focus on domestic resilience and reduce their exposures to international shocks. This slower pace of globalization leads to a small reduction in average economic growth over the next 30 years.
Changing mix of global energy supplies
The future of Russian energy supplies is uncertain. The scenarios in this year’s Outlook assume a persistent reduction in Russian exports of hydrocarbons. In the near term, this reflects the impact of voluntary and mandatory sanctions on Russian energy exports. Further out, it stems from the assumption that sanctions affecting Russia’s access to foreign investment and technologies ease only gradually.
The prospects for global GDP and energy demand are weaker than in last year’s Outlook, reflecting the short- and longer-term impacts of the Russia-Ukraine war.
The increased importance placed on energy security as a result of the Russia-Ukraine war leads over time to a shift away from imported fossil fuels towards locally produced non-fossil fuels, accelerating the energy transition.
The increased preference for locally produced energy stemming from heightened energy security concerns reduces imports of oil and natural gas.
The impact of the Russia-Ukraine war, together with the policy support provided by the Inflation Reduction Act, reduces carbon emissions over the outlook.
Prior to the Russia-Ukraine war, Russia was the world’s largest energy exporter. The impact of the war reduces Russia’s production of both oil and natural gas.
The EU is at the epicentre of the disruptions to global natural gas markets following the reductions in Russian pipeline gas exports. The extent to which the loss of Russian pipeline exports requires the EU to source alternative supplies of gas depends on how successful it is in reducing its demand for natural gas as it decarbonizes its energy system.
The US Inflation Reduction Act (IRA), which was signed into law in August 2022, includes a significant package of largely supply-side measures supporting low-carbon energy sources and decarbonization technologies in the US.