Biden’s Middle East Mission Begins Amid Expanding Global Energy Crisis


So many moving parts to this expanding global energy crisis to note this week.

Writing at Project Syndicate, S&P Global Vice Chairman Daniel Yergin, who I interviewed here last month, predicts that the energy crisis will deepen in the months to come. “Looking ahead, five factors could make today’s energy crisis even worse,” Yergin writes, listing the following factors:

  • Vladimir Putin has opened a “new front” in his war by cutting back on natural gas exports to Europe;
  • The withstanding conclusion of a nuclear deal Iran, which could potentially add significant new volumes to undersupplied crude markets;
  • Lack of spare crude capacity in Saudi Arabia and other OPEC+ countries;
  • Potential for increased oil demand in China should COVID lockdowns be lifted;
  • Increasing tightness in the refining sector that produced gasoline, diesel and other refined products.

Speaking at a global energy forum in Sydney, Australia, International Energy Agency Chief Fatih Birol echoed Yergin’s thoughts, saying that the entire global energy system is in turmoil. “The world has never witnessed such a major energy crisis in terms of its depth and its complexity,” Fatih Birol said. “We might not have seen the worst of it yet — this is affecting the entire world.”

Birol predicted the coming winter in Europe “will be very, very difficult,” a sentiment echoed by Shell CEO Ben van Beurden, who said that the continent “will be facing a really tough winter.” Mr. van Beurden said energy prices will rise further and “in a worst case, we will be in a situation where we have to ration.”

That seems a near-certainty in Germany, where officials have already begun to resort to rationing hot water in efforts to conserve natural gas. Last week, residents in the German State of Saxony were told that they could only take warm showers during certain hours of the day, according to a Financial Times report. City officials in Hamburg notified the public that similar measures would be implemented soon.

These measures came as Russia’s Nordstream 1 natural gas pipeline was taken fully offline for 10 days beginning July 11 for what is being billed as periodic maintenance. The pipeline’s majority owner, Gazprom, had cut deliveries on the line by 60% in June, a move that hits Germany especially hard, since it receives 30% of its natural gas supply from Russia, but which also creates supply difficulty in Austria, Italy and the Czech Republic. This is the “new front” in Putin’s war to which Mr. Yergin referred in his op/ed.

Meanwhile, US President Joe Biden took a victory lap Wednesday on gasoline prices in an effort to take some credit for the fact that the average national price for a gallon of regular unleaded has fallen to $4.61 per gallon. That price is still 27 cents higher than what had been an all-time record prior to his presidency, but Mr. Biden boasted in a statement that “

That statement was issued in the wake of Wednesday’s announced rate of inflation for June, which came in at another all-time high of 9.1% year-over-year. Biden called that number “out-of-date,” pointing out that “energy alone comprised nearly half of the monthly increase.”

Given that global oil markets have begun pricing in an anticipated recession in recent days, causing a 15% drop in crude prices, the President could have more credit-grabbing opportunities as gas prices drop further in the days and weeks to come. Whether he will also want to take credit for the real reason they are dropping seems doubtful, though.

This is the situation as Biden embarked on his trip to the Middle East, which will include a stop in Riyadh, where he will hold bilateral discussions with Saudi Crown Prince Mohammed bin Salman. The White House and Mr. Biden himself have spent weeks denying that the President would press the Crown Prince to increase crude oil exports during their discussions, but National Security Advisor told reporters Monday that oil supplies would be a topic the President would raise during the trip.

“We will convey our general view…that we believe that there needs to be adequate supply in the global market to protect the global economy and to protect the American consumer at the pump,” Sullivan said.

Prices for oil and gasoline are important, but represent just one piece of an energy crisis that is raising prices for energy in all forms, including renewables and electric vehicles. Yergin’s S&P Global firm published a new study this week titled “The Future of Copper,” a key mineral for all manner of energy-related applications, including wind turbines, electric vehicle batteries and solar panels, to name just a few.

The study projects a looming supply shortage of copper by the middle of this decade that will reach significant levels even under its optimism case scenario. “[T]he potential supply-demand gap is expected to be very large as the transition proceeds,” the executive summary states. “Substitution and recycling will not be enough to meet the demands of electric vehicles (EVs), power infrastructure, and renewable generation. Unless massive new supply comes online in a timely way, the goal of Net-Zero Emissions by 2050 will be short-circuited and remain out of reach.”

So, add copper to the growing list of key energy minerals that are either already or soon will be in short supply, along with lithium, antimony, cobalt and others. As Yergin told me in June, the world has never seen an energy crisis of this scope and magnitude. Frighteningly, the growing consensus is that it will only grow worse from here.

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