The current oil crisis is unlike previous ones and consumers will have to bear the brunt of it along with rising inflation, Angela Wilkinson, CEO of the World Energy Council, told CNBC.
“I think this is a first global energy shock, this isn’t the same as the 1970s crisis, oil shock crisis. This is a … consumer driven crisis and the consumer-driven adjustments that are going to come out of this are going to be very significant,” Wilkinson, secretary general at the organization, told CNBC’s “Capital Connection” on Thursday.
The surge in oil prices came after the start of the war in Ukraine, causing major disruptions to the global supply chain in the energy sector as Western countries imposed sanctions on Russia.
The European Union has also proposed a gradual ban on Russian oil, which would increase pressure on energy prices.
As of Friday morning in Asia, the price of futures for Brent crude oil rose by more than 42% since the beginning of the year. It last traded at around $111 a barrel, well above the $80 levels seen earlier this year.
In the 1970s, the world experienced a series of oil shocks as a result of the conflict in the Middle East.
In 1973, Middle Eastern oil producers cut off supplies from the US and other Western countries after their aid to Israel during the Arab-Israeli War. The Iranian Revolution of 1978-1979, which led to the overthrow of the Shah of Iran, also caused another energy shock.
“If you look at the price of … refined products in many parts of the world, they’re now unaffordable for many of the bottom half of societies,” Wilkinson warned. “We’re going to have to see some form of massive reallocation of … money coming out of … this crisis. Consumers are really, really hurting.”
Official data this week showed that UK inflation soared to a 40-year high in April in part due to skyrocketing energy prices. Similar surges in prices were observed in the US, where consumer inflation in April remained close to a 40-year high.
“Just six months ago, we were only talking about climate security. A year ago, we were talking about the Covid crisis and recovery,” Wilkinson said. “Now we’ve got this rolling series of crises in energy – Covid, climate, conflict. And now, we’ve got cost of living crisis being triggered in many countries.”
“The biggest challenge is going to be this new context of affordability and energy justice,” she added. “It’s a big uncertainty and it’s going to require policy innovation but it’s also going to require a new approach to international cooperation.”