The perfect economic storm.

Byline: Imtiaz Rafi Butt

The global economic structure has fallen headlong from the covid-19 pandemic into a challenging energy crisis. At the outset, the losses from the developing crisis are already higher than the super-recession that began in 2007. The oil prices per barrel is set to a hit an all-time high of 100 USD, which has multiple reasons behind it. The world is recovering from the lockdowns of the pandemic and industries are putting people back to work but the same will not be possible for every country and it is feared that the incoming energy crisis will hit the developing nations much more than the developed world. It is a time of grave consequences as these are uncharted waters for everyone. Economists are of the view that 2022 to 2024 will the years that will need meticulous planning, co-ordination, diplomacy and integration to avoid massive economic catastrophes across the globe. The only way forward is to first understand the storm that is developing before us.

The current rise in prices is being observed in all three basic sources of energy, namely, coal, gas and oil. For domestic and industrial consumption, these prices can offset each other. In the year 2020, due to shutdowns of businesses and factories, the demand side dropped drastically, sending oil and gas prices to lose indexes. In 2021, with the roll-out of vaccinations, the businesses began to open up. Economies were set in motion. China and the United States were the first to come out of economic lockdowns. Europe was slow to reach massive vaccinations levels but by start of September, majority of European nations were able to lift restrictions and allow factories to boost up production. The revival in financial activity jump-started transportation and International trade and the requirement of gas and oil went all time high. On the other end, the supply systems were not able to meet the demand. The supply of oil is regulated chiefly by O.P.E.C (Organization of Oil Exporting Countries). With the surging demand, the oil rates and production were delayed. OPEC countries were slow to respond in order to keep the prices stable and some countries were welcoming the hiking prices to recover losses during the pandemic. Further, as the production was boosted, the supply infrastructure began raising prices which further boosted the rates to a near 80 USD per barrel. Many of the major companies that were engaged in supply of oil had cut short their machinery and personnel...