IEEJ: March © IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (678)

February 29, 2024

How Has the International Energy Situation Changed over 2 Years since Russia’s
Aggression into Ukraine?
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
Two years have passed since Russia launched aggression into Ukraine on February 24, 2022.
The fierce war between the two countries is still ongoing and is inevitably likely to be stalemated andprotracted. In response to Russia's aggression into Ukraine, Western countries such as Japan, theUnited States, and Europe have continued to support Ukraine politically, economically, and militarily,
while enhancing economic sanctions against Russia. The Russian sanctions have covered the energy
sector, the main artery of the Russian economy, leading energy exports of Russia as the world’s largest
fossil fuel exporter to become a significant risk factor for the international energy market. In this way,
the international energy situation has been exposed to severe shocks over the past two years,particularly in 2022. In the following, I would like to review and summarize changes in and impacts
on the international energy situation over the two years since Russia’s aggression into Ukraine.
First, I would like to point out that the international energy situation has suddenly beendestabilized, resulting in soaring energy prices and serious supply insecurity. Soaring energy prices
rocked the world in 2022 as Russian oil and coal became subject to a Western embargo, in addition toa significant drop in Russia's pipeline gas exports to Europe. Crude oil prices reached their highest
level since the global financial crisis, exceeding $130 per barrel temporarily. They remained above$100/bbl later. However, natural gas and coal price hikes were even more appalling. European gas
prices skyrocketed close to $600 per barrel of crude oil equivalent. Since 2023, all energy prices havefallen back, leading the serious price spikes and supply insecurity to subside. However, crude oil prices
have remained high, at around $80/bbl. Furthermore, various uncertainties exist about Russia's energy
exports that continue to be supplied to the international market, lingering as a destabilizing factor for
the international energy market.
Second, how to secure a stable supply of energy, which is an important and indispensablecommodity for day-to-day life and economic activities and sometimes becomes a strategic commodity
contributing to the prosperity or poverty of a nation, has been highlighted as an extremely important
policy challenge again. The destabilization of the international energy market due to the Ukraine crisis
has led to a major change in which energy security has emerged as a top priority in energy policy.
Before the current crisis shook the energy situation, carbon neutrality and decarbonization initiatives
had been a top priority challenge regarding energy. Energy policy issues had focused on
decarbonization. The Ukraine crisis has turned the situation around.
Third, I would like to note that the importance of balancing energy security with climatechange and decarbonization initiatives has been highlighted as the world has seen energy security
coming back as a top priority in the wake of the Ukraine crisis while facing “global boiling” andfrequent abnormal weather events. This means that the promotion or acceleration of the energy
transition to achieve both energy security and decarbonization has become an important global
challenge over the past two years. In fact, major countries around the world, including Japan, arestrongly promoting policies and strategies for this purpose. At the same time, however, it should be1

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noted that balancing the two major challenges, which are not easy to tackle, has become even moredifficult and complex. The most important point is that efforts to achieve the balance are likely to leadto higher energy costs while it is becoming difficult socially, economically, and politically even fordeveloped countries to tolerate or absorb energy cost hikes. This problem is more serious in emerging
and developing countries with lower income levels. It has become important to explore various
pathways to curb or minimize the rise in costs associated with the energy transition, while paying
attention to the differences in national circumstances and conditions.
Fourth, Russia's aggression into Ukraine has had a significant impact on the internationalenergy situation by severely shaking the global geopolitical environment and deepening the divisionof the world. The Russian aggression has been coupled with the earlier intensification of the U.S.China confrontation to escalate the confrontation between the West and the China-Russia group. It has
also resulted in an increase in the importance of Global South and other countries that do not belong
to any of the two blocs, prompting the blocs to intensify their tug-of-war race to win over thesecountries. The division of the world has led countries to shift emphasis from the basic international
principles of free trade and the international division of labor to domestic production and deals
between allies or strategic partners to secure strategic material, even if the shift is associated withadditional costs. Particularly important for economic and energy security in this regard is how to securerare earths and other critical minerals required for the energy transition at a time when the supplydemand balance is expected to tighten and push up their prices, with their supply sources limited to afew countries including China.
Fifth, the United States and the Middle East have become more important as energy supply
sources for the international energy market as the international energy situation has been destabilized,with Europe suffering from a serious energy crisis. With Russia's energy exports becoming a risk factor,energy supply from the United States and the Middle East has suddenly become important for
European and other countries to phase out their dependence on Russia or make up for the loss of theRussian energy supply. Due to the West's policy of phasing out dependence on Russia, they have been
forced to rely on the Middle East as an alternative source of oil supply. As a result, Japan's rate ofdependence on the Middle East for crude oil imports rose to 94% in 2022, far exceeding the level amid
the first oil crisis. Furthermore, a mechanism in which coordinated production cuts by the OPEC-plus
group of oil-producing countries, led by Saudi Arabia, and these countries’ voluntary production cuts
affect crude oil prices has become clearer. As for gas, a massive increase in U.S. LNG production andexports to Europe saved the region from the energy crisis. The subsequent decline in gas prices hasbeen attributable to the continued expansion of the U.S. LNG supply. At the same time, however, thesituation in the Middle East has become more fluid due to the deepening, diffusion, and complexity of
the Gaza Crisis, prompting the world to pay attention to the crisis as a potential risk factor. Attracting
global attention regarding U.S. LNG is how the Biden administration's recent pause on new LNG
export licenses could affect the stability of the global LNG market over the medium to long term.
Sixth, the international energy situation’s destabilization triggered by the Ukraine crisis andthe significant decline in Russian energy supply have greatly shaken Europe’s economy, society, andpolitics. Since Europe was heavily dependent on energy from Russia, which is geographically close
to Europe and highly competitive in energy supply, the region has faced a sharp decline in energy
supply and has been forced to phase out dependence on Russia in the wake of the Ukraine crisis,
suffering from energy price hikes and the subsequent rising inflation that have led to economic
deceleration and stagnation. As symbolized by the fact that Germany, Europe's largest economy,
posted an economic contraction of 0.3% in 2023, the European economy has been in a difficult
situation. Against this backdrop, European countries are becoming more cautious than ever about
policies that could lead to further increases in energy costs. This point should also be noted regarding
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the outcome of the European Parliament elections to be held in June this year.
The Ukraine crisis has brought about diverse and significant changes in the internationalenergy situation. Future relevant developments will be important to keep an eye on in the internationalenergy situation.
Contact: report@tky.ieej.or.jp
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