Global oil shock and inflation hurting consumers: World Energy Council

The current oil crisis is not like the previous ones, and consumers will bear the brunt, even as they grapple with rising inflation, Angela Wilkinson of the World Energy Council told CNBC.

“I think this is a first world energy shock, it’s not the same as the crisis of the 1970s, the oil shock crisis. This is a… crisis driven by the consumer and the adjustments driven by the that are going to come out of this are going to be very significant,” Wilkinson, the organization’s secretary general, told CNBC’s “Capital Connection” on Thursday.

The spike in oil prices came after major oil producer Russia invaded Ukraine in late February, causing major global supply chain disruptions in the energy sector as Western countries imposed heavy sanctions on Moscow for 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 international benchmark Brent crude futures price is up more than 42% since the start of the year. It last traded at around $111 a barrel, much higher than the sub-$80 levels seen earlier this year.

Consumers are really, really suffering.

Angela Wilkinson

Secretary General, World Energy Council

The world experienced a series of oil shocks in the 1970s as a result of the conflict in the Middle East.

In 1973, Middle Eastern oil producers stopped supplying the US and other Western nations after they aided Israel during that year’s Arab-Israeli war. The Iranian revolution of 1978-1979, which led to the overthrow 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 are now unaffordable for many of the bottom half 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.”

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Inflation in the UK soared to a 40-year high in April due in part to soaring energy prices, official data showed this week. Similar spikes in prices have also been seen in the US, where consumer inflation hovered near 40-year highs in April.

“Just six months ago, we were just talking about climate security. A year ago, we were talking about the Covid crisis and recovery,” Wilkinson said. “Now we have this ongoing series of energy crises: Covid, climate, conflict. And now, we have a cost of living crisis that is unfolding in many countries.”

“The biggest challenge will be this new context of affordability and energy justice,” he added. “It is a great uncertainty and it will require political innovation, but it will also require a new approach to international cooperation.”

— CNBC’s Patti Domm contributed to this report.

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