Prime Minister Narendra Modi spoke for all the energy-poor countries, from Chile to Indonesia to Rwanda, when he invoked the need for the impoverished to be able to access energy as much as the rich global north at the recently-concluded G-7 Summit in Germany. Experts estimate the total number of energy-poor people in Latin America, Asia and Africa to be in the region of three billion people. In South Asia alone, over one billion people are struggling with extremely limited access to energy, despite the LPG and the LED revolutions in India.
“All of you will also agree with this that energy access should not be the privilege of the rich only — a poor family also has the same rights on energy. And today when energy costs are sky-high due to geopolitical tensions, it is more important to remember this”, Modi reminded the leaders of the richest economies in the world.
India’s oil import bill soared to $119 billion in the fiscal that ended on March 31, as global energy prices exploded, following the return of demand and the Ukraine conflict. Some refiners, including the Indian Oil Corporation, have turned to buying “discounted” Russian crude oil in their efforts to insulate the ordinary Indian from rising petrol, diesel and turbine fuel prices to the extent possible. The government also went along with the refiners to meet the domestic energy demand and, importantly, to control inflation.
The G-7 countries, however, now want to completely curb the flow of Russian oil in the global supply system, which could lead to even higher oil prices and, possibly, Sri Lanka-like energy shocks and disruptions in several countries. Further sanctions could also strengthen the emergence of a parallel international oil market led by Russia and allegedly, quietly though, supported by China.
The international anger against Russia over Ukraine is understandable. No country has the right to disrespect or violate the sovereignty of another. But the G-7 could have, however, explored if there were some other ways to tighten the sanctions on Russia without weaponising oil to such high levels so that the energy deficit economies could be insulated to the extent possible. Many energy economists claim that there is at least a $22 “Ukraine premium” — thanks to the Western sanctions on Russian oil — in the current high prices of crude in global markets.
The PM, in fact, raised the bigger issue of global energy governance. The centre of gravity as far as energy is concerned has already shifted to Asia, but the fact remains that all world energy systems are still tightly controlled by the Atlantic countries. They build and push all global energy narratives. They opt for narratives and actions that suit them, that serve their economic and geopolitical interests. The American dollar is still the currency that rules the global energy landscape. And the International Energy Agency is first and foremost there to serve the interests of the rich and developed countries.
Powerful platforms like the G-20 and the BRICS need to focus more on energy access, poverty and security. Undoubtedly, the world needs a truly global intergovernmental organisation dedicated to just energy transition, energy access and justice and energy and climate. However, for any such project to succeed, India and China, home to close to three billion energy consumers, will need to sit across the table and strategise, creating a new window amidst their serious differences and conflicting views on many issues. Other large countries like Indonesia, South Africa and Turkey could also be invited to brainstorm for initiating such a body.
Thanks to the demonisation of fossil fuels over the past several years, particularly in the Western world, oil prices are also high because of heavy underinvestments globally in exploration and production activities. Many Western oil and gas companies have been forced by their shareholders and climate leaders to either exit or cease investing any further in their core business. The Covid onslaught crippled even some of the strongest oil companies due to the heavy slump in demand for petroleum products in the March to December months of 2020.
Russia accounts for 12.6 per cent of the world’s oil production. Further tightening of the sanctions would see a minimum of 2.5-3 million barrels of crude disappearing from the global supply system, pushing crude prices to even higher levels.
The rich countries may still somehow manage, but most energy deficit countries in the developing world will suffer unimaginable pains. Their economies will stop growing, inflation and unemployment will rise further and social unrest may follow.
PM Modi has given a clarion call to the world leaders. He has spoken on behalf of all energy-poor from Lima to Hanoi to Nairobi. The G-7 leaders must respond. In an increasingly globalised world, either everybody is safe or nobody is safe. The world needs to address the issue of energy poverty together, and, more importantly, on priority. The clock is ticking.
The writer is former chairman of the Energy Security Group of FICCI