Global Economy. Part 2/4

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Today we continue the theme of global economic analysis and analysis of world events (if you have not read the first part, you better start there by following this link). This time we will talk about energy.

The energy crisis

Thanks to Western sanctions against Russia and its energy resources, gas, oil and coal prices have skyrocketed all over the world, and this is Europe's worst dream, since it is now completely dependent on energy supplies from Russia. Until recently, Russia supplied to the EU 27% of all imports of oil, 41% of natural gas, 47% of solid fuel (coal).

Dependence of European countries on Russian gas.

After the U.S. and several EU countries rejected Russian energy resources, the price of gas broke through the mark of $3,800 per thousand cubic meters. The price of coal as an alternative to gas also went up reaching a new absolute record, rising by 33% to $435 per ton, and the price per barrel of oil rose by 17% to $138, and according to economists it is not the limit, it is expected to rise by another +40% to $180 in the near future. The price of gas will also continue to rise due to increased demand as European underground storage capacity is at an all-time low, only 27% full, and the heating season will not end until April. In order to prepare for the next heating season of 2022-2023, the EU countries will have to pump gas at an abnormally high rate, which will further increase its price.

The U.S. president is trying by all means to contain the price of energy by compensating for the lack of energy resources, particularly oil and gas (which used to be supplied by Russia) through new contracts with the UAE and Venezuela, but they explicitly refuse to increase supplies. At the same time, one can clearly see how MPs are making the situation even worse, as an example - US Senator Rubio has introduced a bill to ban oil imports from Iran and Venezuela, some of the largest oil exporters in the world, which could still at least partially cover the shortfall of US needs.

Meanwhile, the UAE has just signed a $10 billion contract with China to build refineries in China that will be supplied with Russian oil.

Besides, it is worth considering the fact that Russia has not yet actually imposed any retaliatory sanctions on the West, and according to OPEC Secretary General, Russian oil exports are crucial for global supplies, and there are no sources that could compensate for the millions of barrels Russia supplies, and nothing can even be said about gas. At the moment Russia is still supplying oil and gas under all agreed contracts to the EU, but what will happen to the price when Russia redirects its volumes to the east in response to sanctions is scary to imagine.

Massive increases in production costs

This rise in energy prices is affecting literally every aspect of production, resource extraction and agricultural activity throughout the western and eastern worlds.

Fertilizer producers in Europe, including Yara International ASA, are already scaling back production because the price of natural gas, which is used as a raw material for nitrogen fertilizer, has skyrocketed to record highs in the wake of this news.

Due to sanctions, prices for the production of construction materials and components are also increasing like by leaps and bounds. For example, in Russia 6,3% of world aluminum production, 10% of world nickel production and 30% of pure nickel production and 40% of world palladium production are concentrated. These metals are used everywhere from in construction and metallurgy to complex products such as batteries and electrical conductors.

The London Metal Exchange (LMA) had to halt trading this week for the first time since 1986 because nickel soared 200%, now trading above $100,000, while aluminum also jumped 20%, breaking $4,000 a ton.

This concludes the second part of the article,

You can go to part three at this link ;)

All of the above is not financial advice, but only the subjective opinion of the author, always do your own research and double-check the information yourself.

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