CSS Current Affairs | Impacts of Past Instances on The Global and National Energy Crisis
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Outline
1- Introduction
2- Expounding the term “energy crisis”
3- What is the Organization of the Petroleum Exporting Countries (OPEC) and its role in the global energy crisis?
4- Past global instances that have led to the energy crisis globally as well as in Pakistan
- ✓The Fourth Arab-Israeli War Leading to Arab Oil Embargo
- Evidence: According to the book “The History of Oil in International Affairs” by Price-Smith, “In 1974, the oil price had risen to 300%, from US $3 per barrel to US $12 per barrel worldwide.”
- ✓Iranian Revolution resulting in a drop in oil production
- Evidence: According to the Council on Foreign Relations, “The Iranian Revolution doubled the global oil price to US $39.50 per barrel.”
- ✓The Global Financial Crisis led to an increase in energy prices worldwide
- Evidence: The World Bank Report 2010 highlights that the continued demand for oil from China and India skyrocketed the global oil price to US $78 per barrel.
- ✓The aftermath of the coronavirus (COVID-19) and the Russian invasion of Ukraine resulted in a global energy price hike
- Evidence: According to the World Economic Forum (WEF), “The Russia-Ukraine war has inflated Brent crude oil prices to US $139 per barrel in 2022, the highest since 2008.
5- How have these global events impacted Pakistan in terms of energy?
- ✓The Fourth Arab-Israeli War led to a high inflation rate and the reduced purchasing power of citizens
- Evidence: According to the World Bank Report, 1975, “The inflation rate of Pakistan jumped from 5.18% to 23.07%, resulting in a 17.89% increase within a year.”
- ✓The Iranian revolution resulted in the net energy import bill and decreased energy affordability for people
- Evidence: According to the Finance Division of the Government of Pakistan, “The net import bill for oil increased from US $50 million in 1973 to US $540 million in 1979.”
- ✓The Global Financial Crisis led to three times more energy imports and a high inflation rate
- Evidence: According to the Pakistan Bureau of Statistics, “From 2004-2005 to 2007-2008, the total oil import bill of the country tripled by rising from US $4.7 billion to US $11.4 billion during the time.”
- ✓The aftermath of the coronavirus and the Russia-Ukraine war resulted in a global energy price hike and frequent power outages
- Evidence: The National Electric Power Regulatory Authority’s (NEPRA) Performance Evaluation Report 2023 says that Pakistan faces a severe electricity crisis, with Karachi experiencing power outages for nearly 15 hours and Lahore for up to 12 hours.
6- Recommendations for Pakistan to come out of the decades-long vicious energy crisis
- ✓To focus on and adopt alternative clean energy sources
- ✓To work speedily on the regional slow-paced energy projects
7- Conclusion
Answer to the Question
Introduction
Energy is one of the fundamental requirements for sustaining the modern way of life. None but energy evolved humans from the Stone Age to the Modern Age. However, some global incidences have led to the energy crisis globally as well as in Pakistan, namely the 1973 Fourth Arab-Israeli War leading to the Arab Oil Embargo, the Iranian revolution in 1979 causing a drop in global oil production, the 2008 Global Financial Crisis skyrocketing the energy price worldwide, and the aftermath of the Coronavirus (COVID-19) and the 2022 Russia-Ukraine war resulting in a global energy price hike. Verily, these international events severely impacted all the oil-importing weak economies, especially Pakistan, in terms of energy. The Fourth Arab-Israeli War augmented the inflation rate, which, in turn, resulted in a reduction in people’s purchasing power, leading to further economic and energy crises. Moreover, the Iranian revolution swelled Pakistan’s net energy import bill, which fueled the energy crisis in the country by decreasing the affordability and availability of energy to people. Similarly, the global financial crisis tripled the country’s energy imports, resulting in a high national inflation rate. Lastly, the aftermath of COVID-19 and the Russia-Ukraine war caused a global energy price hike, thus bringing about frequent power outages across the country. Being vulnerable to global energy shocks, Pakistan must focus on alternative clean energy sources and regional energy projects to get out of the decades-long vicious energy crisis.
Expounding the term “energy crisis”
Understanding the term, the energy crisis is defined as “a shortage of a specific energy source at a specific time in a specific place.” The shortage is usually caused by a scarcity of resources, disruptions in the supply chain, sudden upticks in demand, etc. Moreover, the global energy crisis is the shortage of oil faced by multiple countries worldwide because of global incidences, such as wars, pandemics, etc. For instance, during World War I, oil became crucial for fueling ships, planes, and land vehicles. Therefore, Germany attacked the US oil fields to disrupt its exports to Britain and France, thus leading to the energy crisis in those countries. This is how global events have led to energy crises in different countries.
What is the Organization of the Petroleum Exporting Countries (OPEC), and what is its role in the global energy crisis?
Before moving ahead, it is imperative to glance at theOrganization of the Petroleum Exporting Countries (OPEC), the most influential body in deciding global energy prices. In 1960, OPEC, a permanent, intergovernmental organisation, was founded by the world’s leading oil-producing states, namely Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Delving into the details, its main objective is to regulate oil supply to the global market. According to the OPEC Annual Statistical Bulletin, 2023, “Around 79.5% of the world’s proven oil reserves are located within OPEC states.” In addition, many countries continued to join it. In 2016, OPEC formed OPEC+, which consists of 13 OPEC members and 10 of the world’s major non-OPEC oil-exporting countries, including Saudi Arabia and Russia, as its leaders. As per the Center for Strategic and International Studies (CSIS), “OPEC+ crude output represents about 41% of global oil production.” This signifies that the OPEC+ group is quite influential in determining the price and supply of energy worldwide. Thus, all the oil-dependent countries mainly import oil from OPEC+, so its policies play a vital role in the global energy crisis.
Past global instances that have led to the energy crisis globally as well as in Pakistan
The following section will discuss the past global instances that have led to the energy crisis globally and in Pakistan to elucidate the global energy crisis in detail.
- The Fourth Arab-Israeli War leading to Arab Oil Embargo
First, the Fourth Arab-Israeli War in 1973 led to the first global energy crisis. The war (also known as the Yom Kippur War) began when Egypt and Syria launched a surprise attack to regain the territories that they had lost to Israel during the Third Arab-Israel War. Though Israel faced losses initially, it turned the tide decisively against Egypt and Syria with the help of military aid from the US, the Netherlands, and Denmark. Therefore, the Middle Eastern countries of OPEC increased the oil price as a retaliatory response against Israel and its allies. Israel still refused to withdraw its troops from the occupied territories; consequently, the oil price increased by 70%. With time, it skyrocketed to 130%; afterwards, the Arab countries of OPEC announced a total oil embargo against all the allies of Israel. In 1974, the OPEC countries lifted the ban after successful negotiations, “the oil price had risen to 300%, from US $3 per barrel to US $12 per barrel worldwide,” according to the book “The History of Oil in International Affairs” by Price-Smith. This is how the Fourth Arab-Israeli War, referred to as the “first oil shock,” led to an oil price hike. All the oil-importing countries felt its ripple effects, including Pakistan, a heavily dependent country on imported energy. According to the International Energy Agency’s (IEA) statistics, “In 1973, the percentage of Pakistan’s energy imports fell to 15%, one of the lowest in its history,” indicating the country’s incapacity to afford expensive energy, resulting in a national energy crisis. Hence, in this way, a single event of war in international relations led to the global and national energy crises.
- Iranian Revolution resulting in a drop in oil production
Second, another global oil shockoccurred during the Iranian Revolution in 1978, when thousands of oil workers went on strike in Iran against the then monarch. Therefore, oil production in the country dropped from approximately five million barrels per day to zero, causing a 5% loss of global output. Consequently, “it triggered significant shortages in the global supply of crude oil and an uptick in panic buying, thus almost doubling the global oil price to US $39.50,” according to the Council on Foreign Relations. Thus, political turmoil in the oil-producing state led to the global oil price hike. Moreover, it significantly impacted the economies and energy sectors of countries relying heavily on imported oil, such as California, Pennsylvania, New York, Pakistan, etc. As per the State Bank of Pakistan Report, 1979, “Pakistan spent 32% of its Gross Domestic Product (GDP) on importing expensive energy, primarily oil, to meet its energy needs.” This indicates that the oil price hike at the international level puts a financial burden on the country’s budget, consequently causing it to face a national energy crisis.
- The Global Financial Crisis led to an increase in energy prices worldwide
Third, the 2008 Global Financial Crisis was also one of the events in the international community that resulted in the global energy crisis. It sparked the Great Recession, a sharp decline in economic activity that, in turn, drove energy consumption to a minimum level. Therefore, the decreased demand caused oil prices to fall from US $133.88 in 2008 to US $39.09 in 2009, as per the International Energy Agency. However, China and India continued to import oil during that period because of their high economic growth rates, i.e., “China was growing at 9.2% and India at 6.7% in 2009,” according to the World Bank Report, 2010. Thus, their economic growth drove continued demand for energy, skyrocketing the global oil price to US $78 per barrel, as per the World Bank report 2010. Undoubtedly, the sudden price hike in oil resulted in the worldwide energy crisis, affecting the capacity of weak economies, including Pakistan, that import energy. According to the Pakistan Institute of Development Economics (PIDE), “The efficiency of all institutes, such as hospitals, schools, etc., was reduced to 40% because of the power shortage in 2007.” Hence, the 2008 Global Financial Crisis led to global and national energy crises.
- The aftermath of the coronavirus (COVID-19) and the Russian invasion of Ukraine resulted in a global energy price hike
Fourth, the Coronavirus disease (COVID-19) pandemic also brought about a global energy crisis, and it was further fueled by the Russian invasion of Ukraine in 2022. During the lockdown in 2020, there was a sharp drop in energy demand and, ultimately, in oil production, which severely declined global energy prices. However, as countries lifted lockdowns in 2021, economic activities resumed, thus leading to a rapid increase in energy demands. According to the International Energy Agency, “The global price of oil (Brent) reached US $71 per barrel in 2021, the highest in the past three years.” The fact sheds light on the abrupt changes in the global oil price because of COVID-19. Adding more to the picture, the Russia-Ukraine war has resulted in severe turmoil in global energy markets, fueling the already existing energy crisis. Before the war, Russia was the primary energy exporter to the European Union (EU). Nonetheless, the EU imports 41% of its natural gas and 27% of its oil from Russia. However, the war led to supply disruptions, export embargoes, and economic uncertainty, resulting in higher energy prices. According to the World Economic Forum (WEF), “The Russia-Ukraine war has inflated Brent crude oil prices to US $139 per barrel in 2022, the highest since 2008.” The statistic highlights the impact of the war on global energy prices, making it difficult for energy-importing countries, especially Pakistan, to avoid the energy crisis. The Pakistan Bureau of Statistics states, “The crude oil imports rose by 75.34% in value and 1.4% in quantity during 2022-2023.” In short, the global incidences of COVID-19 and the Russia-Ukraine war have led to a worldwide energy crisis.
How have these global events impacted Pakistan in terms of energy?
After elaborating on the past global instances that led to the energy crisis globally and in Pakistan, it is imperative to discuss their impacts on Pakistan in terms of energy. In the following section, they will be discussed in detail.
- The Fourth Arab-Israeli War led to a high inflation rate and the reduced purchasing power of citizens
To begin with, the 1973 Fourth Arab-Israeli War severely impacted the energy needs of Pakistan, a country that satisfies one-third of its energy needs through imports. Undoubtedly, the international energy price shock drained the foreign exchange reserves of the already economically weak country, shaking its entire economy with a high inflation rate. According to the World Bank Report, 1975, “The inflation rate of Pakistan jumped from 5.18% to 23.07%, resulting in a 17.89% increase within a year.” The fact represents how expensive imported energy led to the economic crisis in the country, which, in turn, led to the energy crisis by reducing the energy purchasing power of citizens. This is how the Yom Kippur War caused a nationwide energy crisis in Pakistan.
- The Iranian revolution resulted in the net energy import bill and decreased energy affordability for people
Next, theIranian Revolution in 1979 also played a significant role in impacting Pakistan’s energy sector. Verily, the global oil price shock after the revolution depleted the country’s foreign reserves, entrapping it in a severe energy crisis nationwide. According to the Finance Division of the Government of Pakistan, “The net import bill for oil increased from US $50 million in 1973 to US $540 million in 1979.” The evidence shows that a significant amount of the GDP was spent on importing expensive energy, resulting in an increase in the cost of energy for citizens. Moreover, the US also imposed sanctions on Iran in 1979 following the seizure of the US Embassy in the country during the revolution. Those sanctions negatively affected Pakistan’s oil imports from Iran. In summary, the Iranian Revolution led to the global price hike of oil and sanctions on Iran, which, in turn, fueled the energy crisis in Pakistan by decreasing the affordability and availability of energy to people.
- The Global Financial Crisis leading to three times more energy imports and a high inflation rate
Furthermore, the global financial crisis of 2008 also impacted Pakistan regarding energy. The skyrocketing price of oil globally during that time made it difficult for the government of Pakistan to maintain a steady supply of power, as the country had been facing a scarcity of foreign exchange reserves. According to the Pakistan Bureau of Statistics, “From 2004-2005 to 2007-2008, the total oil import bill of the country tripled by rising from US $4.7 billion to US $11.4 billion during the time.” The fact signifies the ripple effects of the international financial crisis that caused a high inflation rate, leading to nationwide energy outages.
- The aftermath of the coronavirus and the Russia-Ukraine war resulted in a global energy price hike and frequent power outages
Lastly, the repercussions of COVID-19 and the Russia-Ukraine War have still impacted Pakistan’s energy sector. Pakistan, being highly vulnerable to global supply shocks as most of its power-generating plants still run on imported fuel, grapples with unscheduled and prolonged power outages. According to the National Electric Power Regulatory Authority’s (NEPRA) Performance Evaluation Report, 2023, The country faces a severe electricity crisis, with Karachi experiencing power outages for nearly 15 hours and Lahore for up to 12 hours.” In response to the severe power crisis, the country has introduced ‘National Electricity Policy 2021’ and ‘National Energy Efficiency and Conservation Policy 2023’ to tackle such frequent power outages across the country properly. In short, the pandemic and the Russian invasion of Ukraine have caused an extreme power crisis in Pakistan.
Recommendations for Pakistan to come out of the decades-long, vicious energy crisis
Although the energy crisis lies at the heart of Pakistan’s multiple problems, it is not an issue without a solution. Failure provides a reason to ponder what went wrong in the past. Here, some viable measures are suggested that may prove helpful in alleviating the condition.
- To focus on and adopt alternative clean energy sources
To start with, the world has been going through fast-changing global energy trends; therefore, to keep pace, it is the need of the hour for Pakistan to focus on and adopt alternative clean energy sources, such as wind, solar, etc., as they provide benefits that align with the country’s unique geographical and climatic conditions. As Pakistan receives abundant sunlight yearly, solar energy is a feasible option. Indeed, rooftop solar installations and large-scale solar farms can augment energy availability. In short, the country can minimise its heavy dependence on imported energy by harnessing solar power. Similarly, the coastal areas of Sindh and Balochistan have significant wind energy potential. Therefore, installing wind turbines at significant levels can undoubtedly provide a steady source of clean energy, thus reducing the burden on traditional sources and promoting economic sustainability.
- To work speedily on the regional, slow-paced energy projects
Last but not least, focusing on regional energy projects can also play a vital role in overcoming the ongoing energy crisis in Pakistan. Delving into the details, the China-Pakistan Economic Corridor (CPEC) is considered a ‘game changer’ for Pakistan, primarily because it can potentially resolve the country’s energy crisis. Additionally, the Central Asia-South Asia Electricity Transmission and Trade Project (CASA-1000), the Iran-Pakistan (IP) gas pipeline, and the Turkmenistan-Afghanistan Pakistan India (TAPI) gas pipeline have the potential to revolutionize the energy sector of Pakistan. Still, none of them has been completed yet. Pakistan’s pace of working on these projects is languid, so the country has not harnessed the benefits of all these regional projects regarding energy needs. Conclusively, it is high time the state’s policymakers displayed a more responsible attitude and needed to revise their strategies to get the full benefits from regional energy projects.
Conclusion
In conclusion, the global instances that have led to the worldwide energy crisis include the 1973 Fourth Arab-Israeli War leading to the Arab Oil Embargo, the Iranian Revolution in 1979 causing a drop in global oil production, the 2008 Global Financial Crisis skyrocketing the energy price worldwide, and the aftermath of COVID-19 and the 2022 Russia-Ukraine war resulting in a global energy price hike. Verily, these international events severely impacted all the oil-importing weak economies, especially Pakistan, in terms of energy. The Fourth Arab-Israeli War augmented the inflation rate, which, in turn, resulted in a reduction in people’s purchasing power, leading to further economic and energy crises. Moreover, the Iranian revolution swelled Pakistan’s net energy import bill, which fueled the energy crisis in the country by decreasing the affordability and availability of energy to people. Similarly, the global financial crisis tripled the country’s energy imports, resulting in a high national inflation rate. Lastly, the aftermath of COVID-19 and the Russia-Ukraine war caused a global energy price hike, thus bringing about frequent power outages across the country. Being vulnerable to global energy shocks, Pakistan must focus on alternative clean energy sources and regional energy projects to get out of the decades-long, vicious energy crisis.
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