Global energy crisis (2021–2023)

Based on Wikipedia: Global energy crisis (2021–2023)

In the autumn of 2022, something extraordinary happened in energy markets. Natural gas prices in Europe hit levels so extreme that, briefly, it would have been cheaper to heat your home by burning actual money—stacks of five-euro notes—than to use the gas flowing through your pipes. This wasn't a metaphor. Someone did the math.

The global energy crisis of 2021 to 2023 was one of those slow-motion catastrophes that somehow still managed to catch the world off guard. It pushed eleven million Europeans toward poverty, forced factories to shut down, and triggered a food crisis that rippled across continents. It also, paradoxically, may have accelerated the transition to clean energy by five to ten years.

How did we get here?

The Pandemic Hangover

To understand the crisis, you need to start with what happened in 2020. When COVID-19 swept the globe, the world economy essentially hit pause. Offices emptied. Planes stayed grounded. Factories went silent. Energy demand collapsed so dramatically that, for a brief moment in April 2020, oil prices actually went negative—meaning producers were paying people to take their oil, because they had nowhere to store it.

The Organization of the Petroleum Exporting Countries, better known as OPEC, responded by slashing production. This made sense at the time. Why pump oil no one wanted to buy?

But here's where things got tricky. When economies started roaring back to life in 2021, they did so faster than anyone anticipated. People who had been stuck at home for a year suddenly wanted to travel, to shop, to do all the things they'd been denied. Factories ramped up to meet pent-up demand. Energy consumption surged.

OPEC, however, moved slowly. Bringing oil production back online isn't like flipping a switch. It takes time, coordination, and—crucially—the willingness to do so. The result was a supply-demand mismatch that sent prices climbing.

Meanwhile, a separate crisis was unfolding in global supply chains. The same pandemic that had crushed energy demand had also scrambled the intricate logistics networks that move goods around the world. Ships waited for weeks outside clogged ports. Containers sat in the wrong places. Even when oil was extracted from the ground, getting it where it needed to go became maddeningly difficult.

Europe's Particular Vulnerability

Europe faced a unique problem. The continent had spent decades building an energy system that relied heavily on one supplier: Russia.

This wasn't irrational. Russia has the world's largest natural gas reserves. It sits right next door. Pipelines had been built connecting Russian gas fields to German homes and French factories. The logic seemed sound: mutual economic dependence would promote stability and peace. Germany, in particular, bet heavily on this theory.

By 2021, Russia supplied roughly forty percent of Europe's natural gas. For some countries, the dependence was even more extreme. Germany got about fifty-five percent of its gas from Russia. Austria, nearly eighty percent.

Natural gas matters enormously for Europe. It heats homes. It powers factories. And critically, it generates electricity. In many European power markets, the price of gas effectively sets the price of electricity—even when other sources like wind and solar are producing power. This is because of how electricity markets work: the most expensive power plant running at any given moment sets the price for everyone.

So when gas prices spike, electricity prices spike with them. Even if most of your electricity comes from nuclear or renewables, your bill still goes up.

Then Came the War

In February 2022, Russia invaded Ukraine. This transformed an energy crunch into a full-blown crisis.

The invasion triggered waves of international sanctions against Russia. Europe faced an agonizing choice: continue buying Russian gas and effectively finance the war, or cut off imports and face an economic shock of uncertain magnitude.

Russia, for its part, began weaponizing energy supplies. Even before the invasion, it had been playing games—refusing to increase exports despite rising prices, letting storage levels in Europe fall to worrying lows. After the invasion, it systematically reduced gas flows through the Nord Stream 1 pipeline, citing various technical excuses that few believed.

In early September 2022, Russia halted Nord Stream 1 deliveries entirely.

Then, later that month, came one of the strangest episodes of the crisis. Both Nord Stream pipelines—including Nord Stream 2, which had been built but never entered service—suffered mysterious explosions. Seismologists detected the blasts. Gas bubbled up from the Baltic Sea in plumes visible from the air. European Union and the North Atlantic Treaty Organization (NATO) officials called it sabotage, but declined to name the culprit. To this day, responsibility remains officially unattributed, though theories and accusations abound.

The pipelines became inoperable. A physical infrastructure that had taken years and billions of dollars to build was destroyed in moments.

The Scramble for Alternatives

With Russian gas suddenly unavailable or unreliable, Europe embarked on a frantic search for alternatives. The primary option was liquefied natural gas, or LNG—gas that has been cooled to negative 162 degrees Celsius, at which point it becomes a liquid occupying about 1/600th of its gaseous volume. This makes it practical to ship across oceans in specialized tankers.

The problem? Europe hadn't built much LNG infrastructure. Why would it have? Pipeline gas from Russia was cheaper and more convenient. Germany, the continent's largest economy, didn't have a single LNG import terminal when the war began.

European buyers started bidding aggressively for LNG cargoes from the United States, Qatar, and Australia. They were willing to pay almost any price. The result was a global reshuffling of gas flows. Tankers that would normally have delivered LNG to customers in Asia—South Korea, Japan, China, Pakistan—diverted to Europe instead, where buyers would pay more.

This had consequences. Asian nations faced their own shortages. Pakistan experienced rolling blackouts. Bangladesh couldn't afford enough gas to keep its power plants running. The crisis that started in Europe rippled outward.

Germany, moving with unusual speed for a country known for bureaucratic deliberation, built floating LNG terminals in less than a year—projects that would normally take far longer. Other European nations did the same. Norway, which has its own North Sea gas fields, ramped up production. Algeria, Azerbaijan, and other producers found themselves suddenly popular.

The Climate Paradox

Here's where the story gets complicated. The energy crisis was undeniably awful for millions of people. But it may also have been exactly the shock the world needed to accelerate its transition away from fossil fuels.

The logic is straightforward: when oil and gas become ruinously expensive, alternatives become more attractive. Solar and wind power, whose costs have been falling for years, suddenly looked not just environmentally virtuous but economically essential. Energy efficiency, long preached but often ignored, became a matter of survival.

A February 2023 analysis by The Economist found that Russia's invasion had "fast-tracked the green transition by an astonishing five to ten years." Investment in renewable energy surged. Sales of heat pumps—devices that can warm homes using electricity rather than gas—exploded. European countries that had been debating climate targets for years suddenly had urgent, concrete reasons to reduce their dependence on fossil fuels.

But the short-term picture was less encouraging. Desperate for energy, Europe burned more coal. Global coal consumption rose to over eight billion tonnes in 2022—the highest level in history. Power plants that had been scheduled for retirement got reprieves. Coal mines that had been winding down ramped back up.

Governments, facing political pressure to shield citizens from soaring bills, introduced subsidies and price caps. Some even lowered carbon prices or eased environmental regulations. These measures provided relief but ran directly counter to climate goals. When you make fossil fuels cheaper, people use more of them.

The Food Connection

Energy and food are more tightly linked than most people realize.

Consider fertilizer. Modern agriculture depends on synthetic nitrogen fertilizer, which is manufactured using a process that requires enormous amounts of natural gas—typically accounting for about seventy to ninety percent of production costs. When gas prices tripled, fertilizer prices followed. Farmers faced a brutal choice: pay the higher prices and hope to pass costs on to consumers, or use less fertilizer and accept lower yields.

The numbers are staggering. It has been estimated that nearly half of the world's current population exists only because of synthetic nitrogen fertilizer. Without it, the land simply couldn't produce enough food. The scientist who invented the process, Fritz Haber, arguably did more to shape the twentieth century than almost anyone else—for better and worse.

But fertilizer is just part of the story. Modern farming is energy-intensive at every step. Tractors burn diesel. Irrigation systems run on electricity. Food processing, packaging, transportation, refrigeration—all require energy. In advanced economies like the United States, direct and indirect energy costs can account for forty to fifty percent of the total variable costs of growing crops.

So when energy prices spiked, food prices followed. And this came on top of the direct disruptions caused by the war itself. Ukraine and Russia together account for nearly thirty percent of global wheat exports. Ukraine is sometimes called the breadbasket of Europe. Russian forces blockaded Ukrainian ports, trapping grain shipments and putting the 2022 harvest at risk.

The World Food Programme estimated that the number of people facing acute food insecurity could reach 323 million in 2022—more than triple the level just five years earlier.

Weather Compounds the Crisis

As if pandemic aftershocks, war, and supply chain chaos weren't enough, the weather joined the conspiracy.

In 2021, Brazil—which generates about two-thirds of its electricity from hydropower—experienced its worst drought in nearly a century. Reservoirs ran low. The country faced potential blackouts and had to fire up expensive gas-powered plants to compensate.

In 2022, Europe baked under its driest summer in five hundred years. This mattered for energy in multiple ways. Hydropower dams in Norway, which normally export cheap electricity to the rest of Europe, saw their reservoirs shrink. In France, nuclear power plants—which use river water for cooling—had to reduce output because the rivers were too warm and too low. In Germany, the Rhine River fell so low that barges carrying coal couldn't navigate it fully loaded.

China and California faced their own drought-related hydropower shortages. Climate change, it turns out, doesn't just create long-term problems. It creates immediate, practical ones—and those problems compound existing crises.

The Political Fallout

Energy crises always become political crises. This one was no exception.

In Europe, the crisis intensified debates over the European Green Deal—the ambitious plan to make the European Union climate neutral by 2050. Hungarian Prime Minister Viktor Orbán blamed the crisis on green policies. Czech Prime Minister Andrej Babiš denounced the Green Deal at a climate summit, calling proposed policies "dangerous."

The European Commission pushed back. Frans Timmermans, the European Commissioner for Climate Action, argued that only about one-fifth of the price increase could be attributed to carbon pricing. The real answer, he insisted, was to move faster away from fossil fuels, not slower. "The best answer to this problem today is to reduce our reliance on fossil fuels," he said.

In the United States, President Joe Biden's administration faced different pressures. Gasoline prices became a major political liability. The administration found itself in the awkward position of simultaneously promoting clean energy and pressing OPEC to pump more oil. When OPEC+ (the cartel plus Russia and other aligned producers) cut production by two million barrels per day in October 2022, Washington was furious. The cut was seen as a deliberate effort to raise prices before U.S. midterm elections.

Some unusual diplomatic possibilities emerged. Iran, under crippling American sanctions, offered to help solve the crisis—if only those sanctions were lifted. Venezuela, another sanctioned oil producer, became the subject of similar conversations. The crisis created strange bedfellows.

The International Response

The International Energy Agency, or IEA, took its most dramatic action in decades. Created in 1974 in response to the Arab oil embargo, the agency exists precisely to coordinate responses to energy emergencies. It had only used its collective action mechanisms three times before: during the Gulf War in 1991, after Hurricane Katrina in 2005, and during the Libyan civil war in 2011.

In 2022, it acted twice. In March, member countries agreed to release 62.7 million barrels from emergency oil stocks. In April, they released another 120 million barrels—the largest coordinated release in the agency's history. The United States also drew down its Strategic Petroleum Reserve, the vast underground storage facilities in Louisiana and Texas that hold hundreds of millions of barrels for exactly these situations.

The IEA also published action plans suggesting how ordinary citizens could reduce their energy consumption: drive slower, carpool, take trains instead of planes, turn down thermostats. It felt almost quaint—advice that would have been unremarkable in the 1970s but seemed jarring in an era of assumed abundance.

Winners and Losers

Every crisis creates winners and losers. This one was no exception.

The obvious winners were energy producers outside Russia. Norway's sovereign wealth fund, already the world's largest, grew even larger. Qatar, holder of some of the world's biggest gas reserves, found itself courted by everyone. Australian LNG exporters saw their profits soar.

The United States became Europe's largest LNG supplier, delivering massive quantities—sixteen billion cubic meters in January 2022 alone. American energy companies, which had invested heavily in LNG export capacity, reaped enormous returns.

The losers were more numerous. European households saw their energy bills double or triple. Industries that use lots of energy—chemicals, steel, glass, ceramics—faced existential pressure. Some factories shut down temporarily. Some shut down permanently. There was genuine concern that Europe might deindustrialize, that energy-intensive businesses would simply relocate to places with cheaper power.

Emerging economies got squeezed from multiple directions. They couldn't outbid wealthy European nations for LNG. Their currencies weakened against the dollar, making dollar-denominated energy imports more expensive. Many faced the impossible choice of fuel shortages or crushing debt.

What We Learned

The crisis exposed several uncomfortable truths.

First, energy security had been taken for granted. Decades of globalization had created intricate dependencies that seemed efficient in good times but proved fragile under stress. Europe's reliance on Russian gas wasn't just an economic arrangement; it was a strategic vulnerability that Russia could and did exploit.

Second, the transition to clean energy isn't just about climate. It's about independence. Countries that generate their own electricity from wind and sun don't need to worry about a foreign government cutting off supplies. The crisis made this case more powerfully than any environmental argument ever had.

Third, fossil fuel markets remain capable of extraordinary volatility. Oil prices hit their highest level since 2008. Gas prices reached records that would have seemed inconceivable just a year earlier. The world's economy still runs on hydrocarbons, and disruptions in hydrocarbon markets can cause immense damage.

Fourth, everything connects to everything else. Energy prices affect fertilizer prices affect food prices affect political stability. A drought in Brazil matters to electricity consumers in São Paulo. A war in Ukraine matters to bread prices in Egypt. We inhabit a deeply interconnected system that can transmit shocks with frightening speed.

The Uncertain Aftermath

By 2023, the acute phase of the crisis had eased somewhat. Gas prices, while still elevated, had fallen from their peaks. Mild winter weather in Europe reduced heating demand. Conservation efforts paid off. The new LNG infrastructure started coming online.

But the aftershocks continued. European businesses remained worried. A 2023 survey found that sixty-four percent of firms were concerned about energy prices, and seventy percent expected further increases. The competitive gap between Europe and places with cheaper energy—notably the United States—widened.

The crisis had changed investment patterns. About a third of European Union enterprises reported investing in climate-friendly technologies and sectors. More European businesses than American ones were investing in renewables and sustainable transportation. The shock had catalyzed action.

Yet the fundamental tensions remained unresolved. The world still needs massive amounts of energy. The transition to clean sources is happening but not fast enough to prevent climate damage. And the geopolitics of energy—who controls it, who needs it, who can use it as a weapon—shows no signs of becoming less fraught.

The 2021-2023 energy crisis may eventually be remembered as a turning point: the moment when the abstract case for energy transition became viscerally, painfully concrete. Or it may be remembered as a warning that went unheeded, a dress rehearsal for larger disruptions to come.

What's certain is that it demonstrated something important about how the modern world works. Energy isn't just a commodity. It's the substrate on which everything else depends—food, industry, warmth, light, the basic functioning of society. When it becomes scarce or expensive, the consequences cascade through every aspect of life.

The next time someone tells you that energy policy is boring, you might remind them of the year when it would have been cheaper to burn money than to heat your home.