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How the ‘Energy Shock’ Has Upended the Global Economy

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Just as the world was getting serious about a green-energy future, its dependence on fossil fuels struck home with a force not seen since the 1970s. Russia’s invasion of Ukraine combined with pressures unleashed by the pandemic to send the price of all forms of energy rocketing, with oil climbing more than 50% in the first half of 2022. That energy shock was at the heart of a surge in inflation that caused hardship and political headaches around the globe.

Just two years ago, the price of the benchmark US oil futures contract plunged briefly below zero as the pandemic sank the global economy. A year later, the price had rebounded to pre-pandemic levels and kept on rising as revived demand outstripped growth in crude supplies. Then came a wild series of jolts from the waves of sanctions by the US and its allies to shut out Russia, the source of 10% of the world’s oil (along with other key commodities from wheat to fertilizer to nickel). More than half of Russia’s oil exports go to the countries in the European Union, but markets for energy are global, so changes in supply and demand are felt worldwide.