The current oil crisis isn’t like previous ones — and consumers will have to bear the brunt of it even as they grapple with rising inflation, Angela Wilkinson from 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 spike in oil prices came after major oil producer Russia invaded Ukraine in late February, triggering major global supply chain disruptions in the energy sector as Western countries slapped heavy sanctions on Moscow for the unprovoked war.
The European Union has also proposed a gradual ban on Russian oil, putting more pressure on energy prices.
As of Friday morning in Asia, the price of international benchmark Brent crude futures has surged more than 42% since the start of the year. It last traded at around $111 per barrel, far higher than levels below $80 seen early this year.
The world saw a number of oil shocks in the 1970s as a result of conflict in the Middle East.
In 1973, Middle Eastern oil producers halted supply from the U.S. and other Western nations after they assisted Israel during the Arab-Israeli war that year. The Iran revolution from 1978-1979, which led to the ousting of the Shah of Iran, also triggered 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.”
Inflation in the U.K. soared to a 40-year high in April due in part to spiraling energy prices, official data this week showed. Similar spikes in prices have also been seen in the U.S., where consumer inflation remained near 40-year highs in April.
“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.”
— CNBC’s Patti Domm contributed to this report.