Global energy crisis, explained
3 long-term consequences
March 16, 2025
At its simplest: the crisis came from a global energy deficit that increased prices.
The trigger: Russian invasion of Ukraine in February 2022.
Uncertainty about potential sanctions and supply disruptions caused oil and gas prices to jump immediately.
In one week, February 21-28:
Crude oil price increased globally by 25% from $91.7 to $114.3 per barrel.
Gas price more than doubled in Europe from $94.4 to $192.5 per MWh.
However, the energy market was already pushed into crisis by two trends:
Factor 1: Quicker-than-expected economic recovery from the pandemic
In 2020, during the COVID-19 pandemic, global energy consumption decreased by 4%.
As economies reopened in 2021, global energy demand increased by 4.6%, but supply could not keep up, forcing prices up.
Factor 2: Lower global investment in oil and gas, favouring renewables
The oil and gas sector experienced years of underinvestment, with total global fossil fuels investments declined by 30% between 2015 and 2021.
Oil price drops in 2014 and 2020 lowered long-term returns for investors and oil companies.
Many investors chose projects aligned with sustainability criteria, especially in solar, wind and hydroelectric energy.
Months before the invasion of Ukraine, Russia stopped sending gas through the Yamal-Europe pipeline, which connects it to Germany. The falling supply began driving up prices.
February 24, 2022: Russia invades Ukraine. At that time, Russia was the largest gas supplier to the EU, providing approximately 39% of its gas.
Energy weaponisation refers to the strategic use of energy resources — such as oil, natural gas or electricity — as a tool of coercion, leverage or geopolitical influence.
In 2022, Russia weaponised its gas trade with the EU through supply cuts, causing an increase in energy and electricity prices in the EU and globally.
Russia's strategy relied on the EU's limited import capacity for liquified natural gas (LNG) and its dependency on Russian supplies of oil and gas.
The EU and the G7 responded to Russia by:
Gradually banning some fossil fuel imports from Russian
Setting a price cap on Russian oil
Imposing sanctions on Russian energy projects like Arctic LNG 2
Finding alternative suppliers of energy sources and reducing dependency
Accelerating clean energy efforts
Oil price cap: In December 2022, the G7 imposed a limit of $60 on every barrel of Russian oil sold.
How was it enforced? Banning Western insurance companies from covering ships exporting Russian oil, as well as restricting other maritime services.
The aim: to allow Russian oil to keep flowing but at a controlled, lower price, both cutting Russian revenue and preventing significant market shocks.
First results: In the first twelve months following the EU sanctions and the G7 price cap, Russia suffered an oil revenue loss of $36.8 billion.
Russia was forced to accept a 30% discount on its Urals-type oil sold to India. Half of that is attributed to increased shipping costs, while the other half — to stronger bargaining position of India in the face of many other countries reducing their purchases.
However: Since July 2023, the price of Urals crude oil has steadily rebounded and averaged above the $60 price cap.
Why?
Russia established a “shadow fleet” of third-country registered (“grey”) and illegal (“dark”) tankers to transport its oil, circumventing the sanctions. As of November 2024, this fleet transported approximately 65% of Russia's maritime crude oil exports.
More permanent shift of oil exports to Asia, especially India and China, with costs decreasing and volume growing as logistics improve. China and India combined bought 84% of all Russian oil exports since the Russian embargo, as well as 63% of coal exports.
Increased oil prices, supported by OPEC+ production cuts.
The impact of the energy crisis on the EU's economy:
The EU's inflation increased from 2.5% in 2021 to 8.8% in 2022 and 6.3% in 2023, driven by higher costs of energy and fuel.
Energy poverty: In 2022, 40 million people or 9.3% of the EU's population could not heat their homes adequately, compared to 6.9% in 2021.
Between September 2021 and January 2023, EU governments spent $650 billion on mitigating the impact of the energy crisis, especially supporting the population with covering energy costs.
Some industries were forced to cut production or shut down, especially energy-intensive and petroleum-using industries like steel, chemicals and fertilisers.
The Euro area is projected to lose $210 billion in potential economic growth from 2021 to 2027.
What is LNG?
Liquefied natural gas (LNG) consists of 85-95% methane, which is cooled to -161°C when it becomes liquid. This is especially useful for shipping and storage.
Regular natural gas is transported by pipes to its destination. LNG is transported via tank ships, making it possible to reach new regions for export.
When it arrives at the import terminal, LNG is turned back into gas.
Main applications: power generation, industrial production, ship fuel and household heating.
LNG is the least polluting fossil fuel, emitting 440 kg CO₂ for each megawatt-hour (MWh) of electricity generated. In comparison, oil emits 63.6% more CO₂ than LNG and coal emits 120.4% more CO₂ than LNG.
LNG trade increased on average by 10.2% annually since 1971, rising from 3.5 billion cubic meters (bcm) to 549.4 bcm in 2023.
LNG global demand is projected to rise by more than 50% by 2040.
The US, Australia and Qatar are the largest LNG exporters in the world.
Trend 1: accelerated energy transition in Europe
The energy crisis exposed Europe’s vulnerability to shocks in the fossil fuels market.
In response to the energy crisis, the EU adopted a $330 billion plan to accelerate its clean energy production and diversify energy import sources, REPowerEU, in May 2022.
From 2021 to 2024, in the EU:
Photovoltaic solar power capacity more than doubled from 161.8 gigawatts (GW) to 338 GW.
Share of renewables in electricity generation grew from 37.8% to 47%.
CO2 emissions decreased by 12% from 2.75 billion metric tons in 2021 to 2.41 billion in 2024.
Share of gas imports from Russia dropped by almost two thirds, from 45% to 18%.
Renewable energy capacity in Europe expanded and in 2024 there was a record number of hours with negative electricity prices.
This occurs when (especially on warm and sunny days), electricity generation from renewable and other sources is higher than the overall demand. In this situation, consumers are paid to use electricity.
While this could be beneficial to those with devices to run, negative energy prices could be damaging to producers of renewable energy and slow investment in the sector. In oil, major producers collaborate to limit supply and avoid lower prices.
Trend 2: renewed political interest in European nuclear energy
France: In 2022, President Macron announced plans to construct up to 14 nuclear reactors, but the project has not yet begun due to financial insecurity.
Germany: In 2023, the country phased out nuclear energy. During the 2025 election campaign, right and centre-right parties, including the Christian Democratic Union (CDU), have discussed the possibility of reopening the nuclear reactors.
Italy: In 2025, the government released a bill paving the way for constructing nuclear reactors in the 2030s.
Belgium: In 2025, the government reversed the planned nuclear phase-out and extended the operations of two reactors for ten years.
Poland: In 2023, the government announced the plan to build 24 nuclear reactors, with the first one expected to be deployed by 2030.
EU: In 2023, nuclear energy was included in the EU Taxonomy, which classifies environmentally sustainable economic activities to guide investments toward green projects.
The pro-nuclear bloc within the EU, composed of France, Finland, Czechia, Hungary and others, supported this decision. The anti-nuclear bloc, composed of Germany, Austria, Denmark, Portugal and Luxemburg, opposed it, citing safety and financial concerns.
In February 2024, the European Commission launched an industrial alliance to develop Small Modular Reactors.
Trend 3: shifts in fossil fuel trade routes
During the energy crisis, LNG became an immediate alternative for EU countries seeking to replace Russian gas.
EU LNG imports jumped by almost 60% between 2021 and 2023, staying at the higher level since.
Norway and the US became the first and the second biggest gas suppliers to the EU.
Between 2021 and 2022, LNG import routes underwent significant changes.
Europe: LNG imports increased by 62.7 bcm due to a shift from Russian pipeline gas to LNG.
Asia: LNG imports decreased by 24 bcm primarily because high LNG prices driven by European demand made it too expensive for some Asian countries. As a result, they turned to alternative fuels like coal.
China: LNG imports decreased by 16.7 bcm, mainly due to reduced industrial production caused by COVID-19 restrictions and an increase in pipeline gas imports from Russia.
India: LNG imports decreased by 5.2 bcm, largely due to the rising costs of LNG and a shift to domestic coal and pipeline gas.
South America: LNG imports decreased by 10.9 bcm as hydropower production rebounded after a severe drought in 2021. Brazil was the most affected, with a decrease of 7.8 bcm in its LNG imports.
To meet the increasing demand, several countries have boosted their LNG exports, including the US (+9.6 bcm), Qatar (+7.2 bcm), Malaysia (+4 bcm), Australia (+3.8 bcm), and Norway (+3.6 bcm).
In 2024, EU’s reliance on LNG began to fall, with overall imports decreasing almost 20%. The main reasons were (1) a decline in the overall gas consumption and (2) an accelerated adoption of renewable resources.
By 2030, the EU's demand for LNG is projected to decrease to 127 bcm, which is still higher than the 105 bcm recorded in 2021.
Several EU countries continue to honour long-term LNG import contracts with Russia, as the EU ban specifically targeted Russian pipeline gas and did not include LNG.
As of early 2024, Russia accounted for 17.3% of the EU's gas imports and 17.7% of the LNG imports. The EU plans to end its use of Russian fossil fuels by 2027.
Following the invasion of Ukraine, Russia's conventional energy trade routes have been disrupted.
Russia's LNG and pipeline gas exports fell by 42% in 2021-23, from 244 to 142 bcm
Russia's oil exports fell by 14% in that period, from 7.8 million to 6.7 million barrels/day.
Russia has considerable potential in the LNG market due to (1) its vast resources, (2) strategic location and (3) low production costs.
However, its long-term development is impacted by sanctions, as LNG projects currently depend on Western technology, as well as on access to international financial institutions due to high costs.
Author Elia Preto Martini
Editor Anton Kutuzov
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