IEEJ：August ©IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (600)August 31, 2022

How Has Russia’s Invasion into Ukraine Changed International Energy Situation?
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
A half year has passed since Russia launched its military invasion into Ukraine on February
24. The Ukraine war is likely to continue long, with no sign indicating a ceasefire or any otherbreakthrough. While Ukraine and Russia are warring, Western countries including European countries,
the United States and Japan are supporting Ukraine while denouncing Russia harshly. China for its
part maintains strategic relations with Russia. All these countries seemingly anticipate that various
grave issues arising from the war will remain global challenges, without being resolved.
Western countries have imposed tough economic sanctions on Russia, leading the Russian
economy to contract. While sanctions have covered the energy sector that forms the main artery of theRussian economy, energy price spikes and the maintenance or expansion of energy exports to countries
not participating in the sanctions have ironically boosted Russian energy export revenue from the level
before the sanctions. Russia was the world’s largest fossil fuel exporter, accounting for 11% (the largestshare) of global oil exports, 24% (the largest share) of global gas/LNG exports and 18% (the thirdlargest share) of global coal exports in 2021. While energy exports from Russia have been subjected
to Western sanctions, Russia has reduced its gas exports to Europe. These developments have greatly
shaken international energy markets. The following considers how Russia’s military invasion intoUkraine has changed the global energy situation in the past half year.
First, I would like to point out that the world has recognized the important role of energy
anew as energy price spikes have rapidly increased energy insecurity. When energy prices are stable
at low levels, people view energy as like air and water and have little interest in stable supply of energy,
despite its importance. Once energy prices increase substantially in a manner to destabilize energy
markets, however, the price increase becomes a grave social, political issue due to energy price hikes’
regressivity (that affects lower income earners more seriously). If indispensable energy becomesdifficult to acquire, it may develop into a big issue to destabilize society. Now that the current pricespikes cover all energy sources, their impacts are widespread and serious. This is a key point to note.
This issue commonly affects all energy consumers or energy consuming countries in theworld. As a matter of course, oil-producing countries in the Middle East can exploit energy price spikes
to boost their export revenue to their economic advantage. Globally, however, citizens have clearly
suffered from energy price spikes and market destabilization since Russia’s invasion into Ukraine. The
degree of such suffering and the seriousness of problem awareness differ by country or region,
depending on local conditions. In the past half year, it has become clear that Europe that depends
heavily on Russian energy supply is plagued with the most serious energy crisis. The energy crisis isalso serious in Japan that depends less on Russian energy supply than Europe, but has a low energy
self-sufficiency rate and a structurally tight electricity supply-demand balance. Regarding energy pricehikes’ regressivity, the current energy crisis has exerted grave impacts on economically vulnerable
developing and emerging countries. The crisis has led these countries to recognize anew how1

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important energy is.
Second, I would like to note that the abovementioned changes have prompted national
governments in the world to dramatically change their policies to enhance energy security. Becoming
conscious that national governments are responsible for ensuring energy security and working toprovide energy stably to protect their peoples, Europe and Japan with a particularly strong sense ofcrisis have dramatically changed energy policy directions. Given that the current crisis originated from
insecurity about Russian energy supply, Europe and Japan have enhanced policies to (1) reduce
dependence on Russia, (2) develop domestic and international cooperation arrangements to prepare
for emergencies, (3) invest in the energy sector (including the fossil fuel sector) to secure necessary
and sufficient energy supply capacity and surplus capacity and (4) secure stable baseload electricity
sources. Symbolic among various measures to enhance energy security are the promotion of nuclear
power generation. Moves to effectively utilize existing nuclear power plants and construct new nuclear
plants, as well as growing hopes on new reactors such as small modular reactors in Europe and Japan,
indicate a turning point in the global energy situation.
Third, I would like to point out that as countries tackle the enhancement of energy security,
geopolitical issues that may destabilize and disrupt energy markets are emerging. In Europe that isfeared to face gas shortages in the coming winter, for instance, gas prices have spiked abnormally.
Last week, European gas prices rose to some $600 per barrel of oil equivalent. If European countries
try to procure gas amid such abnormal price hikes, they may panic and race with each other to acquiregas in a zero-sum game, leading to even higher prices and market destabilization that would seriously
affect the entire world. On the other hand, Western countries are escalating confrontation with Russiaand China that are strengthening their strategic partnership, in a manner to divide the world moredeeply. The division may lead to the disintegration of the international energy market. Big players
such as the United States, China, Russia, Europe and the Middle East may continue to shake theinternational energy situation greatly from geopolitical perspectives. The international energy situation
may be shifting from a world for the pursuit of pure economic efficiency to a world put under thestronger influence of geopolitics.
Fourth, I would like to comment that countries in the world may give top priority to theurgent challenge to secure stable energy supply in the immediate future, affecting decarbonization andCO2 emission initiatives variously. While the acceleration of efforts to save energy, electricity and gas
consumption and the promotion of renewable and nuclear energy can contribute to reducing CO2emissions, moves to utilize coal-fired power plants for stable energy supply over a short term are seen
even in Europe known as eager to promote decarbonization. The utilization of coal as a relatively
cheaper energy source is an unavoidable measure in developing and emerging countries whereaffordable energy supply is indispensable. After global discussions focused on decarbonization until
last year, the focus may be shifting to how to strike a balance between decarbonization and energy
security specifically and efficiently from long-term perspectives amid the international energy
situation after Russia’s invasion into Ukraine.
Fifth, I would like to point out that international energy price spikes and market
destabilization after Russia’s invasion into Ukraine have seriously affected the global economy,
forcing it to remain exposed to downside risks. Growing inflation through energy price spikes has
shaken European and American societies and economies, prompting monetary authorities to change
their policy direction to raise interest rates. The International Monetary Fund revised its global
economic growth projection for 2022 from 4.4% in January to 3.6% in April and 3.2% in July. Further
downside risks could arise, depending on international energy market turbulences. In particular, a2

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serious recession is feared in Europe. Energy price spikes and market destabilization have seriously
dampened the global economy that had been recovering gradually from the COVID-19 disaster.

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