IEEJ：March ©IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (577)

March 25, 2022

Ukraine Crisis and International Energy Situation
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn March 24, one month after Russia’s military invasion into Ukraine, I had an opportunity
to make a one-hour report on the Ukraine crisis and the international energy situation and hold a 40minute question-and-answer session at the Japan National Press Club in Tokyo. The most important
issue that exerts the most decisive influence on international politics, security and the global economy
is the ongoing Ukraine crisis, under which energy security is a great matter of concern to the world.
In the briefing, I discussed global energy policy challenges based on a comprehensive review ofinternational energy market changes since 2020, such as the emergence of the COVID-19 pandemic,
the inauguration of the U.S. Biden administration and the acceleration of the decarbonization trend,
while focusing on rapid changes in the international energy situation one month after the Russian
invasion. In the following, I would like to summarize key challenges and issues indicated in thequestion-and-answer session, based on key points of my report.
First, I would like to point out that the remarkable market destabilization under the current
Ukraine crisis is particularly serious in the history of international energy markets. The current
destabilization of international energy markets following simultaneous energy prices hikes since thesecond half of last year has resulted from United Nations Security Council member Russia’s militaryinvasion into Ukraine, an attempt to change the status quo by force. As Russian attacks and Ukrainian
resistance continue now, the situation is extremely serious, with many citizens being killed. Theinternational community, including Europe, North America and Japan, has concluded the outrageous
Russian act as unforgivable, implementing and enhancing extremely tough sanctions on Russia. In
such situation, energy market players are conscious of potential disruptions to energy exports from
Russia that accounts for 11% of global oil exports and 25% of global gas exports, triggering pricespikes for crude oil, gas and liquefied natural gas. As the world is increasingly concerned that largescale disruptions to Russian energy supply could lead to physical energy shortages, stable energy
supply in the world, including Europe that is heavily dependent on Russian energy supply, is exposed
to serious risks. As a military conflict or war has been combined with sanctions including an embargo
under the tight energy supply-demand balance and energy-consuming countries’ heavy dependence on
specific supply sources seen since before the crisis, the current Ukraine crisis has similarity to the firstoil crisis.
Second, I would like to point out that while the geopolitical situation representing theUkraine crisis has destabilized energy markets, energy market destabilization has exerted grave
influence on international politics and the global economy. This means that energy issues have beeninteracting with the international situation and geopolitical issues. As energy is indispensable for civic
life and economic activities, energy price hikes and potential physical energy shortages are shaking
international politics and the global economy. Although Western countries are enhancing tougheconomic sanctions to stop Russia’s military invasion, they have fallen short of cutting deeply into theRussian energy sector. Although the United States, Canada and the United Kingdom have subjected1

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Russia to an energy embargo, the three countries depend little on Russian energy. As a matter of course,
crude oil price hikes affect the entire world including the three countries. Given that the three countries
are free from dependence on Russia or imports, however, they do not have to worry about potential
physical shortages. Meanwhile, countries that depend heavily on energy imports from Russia must
consider potential physical shortages as well as price hikes and have no choice but to be cautious ofsanctions that would cut into the Russian energy sector. In this sense, industrial countries including
the Group of Seven members have been put into different positions. While they are making maximum
efforts to overcome such differences and unite, the presence of different vulnerabilities regarding
energy has become a challenge in international politics. At the time of the first oil crisis, similar
vulnerability gaps led to the collapse of cooperation among industrial countries. Energy market
destabilization including price hikes as well as physical supply shortages could deal a serious blow tothe global economy. The energy market instability that could contribute to inflation that is becoming
a matter of grave concern has loomed as a serious risk factor for the global economy. Energy pricehikes could affect domestic politics through increasing burdens on citizens and economic deceleration.
In this way, energy market destabilization is shaking politics and economic activities.
Third, we must consider that in such situation, stable energy supply has attracted attention
as an urgent challenge, paving the way for stable energy supply measures to be implemented strongly.
Particularly, economies plagued with vulnerabilities regarding stable energy supply have come topromote policies that are far stronger than ever before. The European Union has come up with theREPowerEU plan to modify its energy mix to reduce demand for Russian oil and gas by promoting
renewable energy and energy efficiency. Moves to review nuclear energy as a stable baseload powersource have also emerged. For instance, France has revived and promoted new nuclear power plant
construction plans. At the same time, the EU is promoting initiatives to secure alternative gas supply,
including liquefied natural gas from the United States and Qatar, to diversify gas and oil supply sources
and reduce dependence on Russia. Germany has launched initiatives to develop LNG import terminals
and relevant pipelines to enhance the flexibility and resilience of gas supply arrangements. Such strong
policies cost much effort and money and are difficult to accept or implement in normal times. The
current crisis is so serious that strong policies can be accepted and realized. This leads us to rememberthat industrial countries embarked on strong energy security policies after the first and second oil crises.
Fourth, I would like to note that initiatives to retain and enhance international cooperationin anticipation of emergencies are indispensable for energy security policies. At the time of the firstoil crisis that destabilized the oil market, cooperation among major oil-consuming countries collapsed
under Arab countries’ oil embargo pressure. The International Energy Agency was created to restore
cooperation among oil-consuming countries. In preparation for potential energy supply disruptions
through the Ukraine crisis, Western industrial countries should overcome their differences invulnerabilities regarding stable energy supply, cooperate in addressing any crisis and deter exclusive
or panicky actions in a zero-sum game. Ingenious attempts and leadership are required to enhanceinternational cooperation to defend international energy governance.
Fifth, I would like to point out that how to harmonize the enhancement of energy security
with decarbonization is a key long-term challenge. As a matter of course, stable energy supply is a toppriority in an emergency. Medium to long-term structural initiatives to accelerate energy efficiency
improvements and promote non-fossil energy, such as renewable energy and nuclear attracting
attention anew, would basically contribute to decarbonization. Electrification and hydrogen promotion
to reduce dependence on Russia would also be effective for decarbonization. On the other hand, thecurrent crisis has highlighted how important the securement of stable fossil fuel supply is during along transition to decarbonization. For stable fossil fuel supply, sufficient supply capacity including
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surplus capacity should be secured, with supply sources being diversified. Relevant investment will
be required to stabilize international energy markets. It is also important that the current crisis has led
us to recognize that costs for energy transition for decarbonization and energy security should besuppressed and minimized.
In response to the new situation under the Ukraine crisis, Japan should recognize thesignificance of energy security and enforce domestic and foreign policies and strategies tosimultaneously achieve the so-called S plus 3Es – Safety plus energy security, economic efficiency
and environmental protection.

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