Russian Energy's Road to Recovery: A Long and Winding Path

The geopolitical tensions between Russia and Western countries, particularly the sanctions imposed on Russian energy exports, have significantly impacted the global energy market dynamics and the profitability of energy firms in non-Russian countries. The Russia-Ukraine conflict, which began on February 24, 2022, led to a series of embargos and sanctions on commodity exports from Russia. These actions exacerbated various macroeconomic indicators and had a particularly concerning impact on global energy markets. The conflict crippled global energy supply chains, triggering unprecedented hikes in the prices of energy resources, especially oil and natural gas. For instance, the ongoing war between Russia and Ukraine has significantly surged the price of natural gas and curtailed its supply in European countries, as Russian national gas used to account for a substantial share of Europe's natural gas consumption portfolio. Similarly, the Russo-Ukrainian turmoil was responsible for hiking gasoline prices in the United States of America (USA) (Reynolds, 2022).

The sanctions on Russia's energy exports have prompted global economies to boycott Russian energy, leading to a contraction in global energy supplies and a skyrocketing of energy prices, especially in countries that were large-scale importers of Russian energy. The International Energy Agency (IEA) assumes that higher fuel costs globally increase the average cost of producing electricity by almost 90% (World Economic Forum (WEF), 2022). This has severely reduced electricity affordability worldwide. The war has had its toll on the European energy markets, which experienced unprecedented escalations in wholesale prices of electricity and gas, particularly due to Europe's vast reliance on energy imports from Russia (Ferriani and Gazzani, 2022).

On the other hand, the rise in prices of energy due to the ongoing geopolitical tensions between Russia and Ukraine can be a gateway for non-Russian energy-producing firms for amplifying their stock returns. As the global economies would gradually look for sources other than Russia for importing oil and natural gas, not only would the share of non-Russian energy exports in the global energy export figures start increasing but the profitability of the energy firms in those countries can be expected to rise in tandem (Nerlinger and Utz, 2022). For example, the renewable energy market-related returns across Europe have significantly increased from the onset of the Russia-Ukraine war (Umar et al., 2022). Consequently, one can expect the Russia-Ukraine conflict sentiments to contribute to the realization of the objectives of SDG 7 concerning the vision of leaving no one behind by ensuring sufficient access to reliable, modern, and clean energy (Küfeoğlu, 2022).

The Russia-Ukraine conflict has had profound and far-reaching implications for global energy supply chains, with potential long-term effects that could reshape energy security and the transition to renewable energy sources. One of the most significant impacts has been the disruption of energy supplies, particularly natural gas, from Russia to Europe. As noted, "the ongoing war between Russia and Ukraine has significantly surged the price of natural gas and curtailed its supply in European countries since Russian national gas used to account for a substantial share of Europe's natural gas consumption portfolio" (Mišík, 2022). This disruption has led to unprecedented hikes in energy prices, affecting not only Europe but also other regions like the United States, where gasoline prices have also increased (Reynolds, 2022).

The conflict has also highlighted the vulnerability of global energy supply chains to geopolitical risks. The reliance on Russian energy exports has been a critical factor in this vulnerability, as evidenced by the fact that "Russia has been a major supplier of oil and natural gas for the global economies" (Wicaksana and Ramadhan, 2022). The sanctions and boycotts imposed on Russian energy exports have led to a contraction in global energy supplies, prompting energy prices to skyrocket, especially in countries that were large-scale importers of Russian energy (Benton et al., 2022).

These disruptions have significant implications for energy security. Energy security is not just about ensuring an uninterrupted supply of energy but also about the stability of energy markets and the sustainability of energy resources. The conflict has shown that geopolitical risks can severely impact energy security, as seen in the case of Europe, where "the issue of geopolitical conflicts and energy security has always been important in the recent global" (Energy, Volume 313, 30 December 2024). The disruption of energy supplies can lead to higher production costs and increased inflation, affecting economic growth and social stability (Lee et al., 2022).

On the other hand, the conflict has also created opportunities for the transition to renewable energy sources. The rise in fossil fuel prices due to the conflict has made renewable energy more competitive. As noted, "the renewable energy market-related returns across Europe have significantly increased from the onset of the Russia-Ukraine war" (Umar et al., 2022). This shift towards renewable energy is in line with the objectives of SDG 7, which aims to ensure access to reliable, modern, and clean energy (Küfeoğlu, 2022).

The conflict has also accelerated the push for energy independence and diversification. Europe, for instance, has been working on reducing its dependence on Russian energy through policies like the REPowerEU programme, which aims for independence from Russian fossil fuels by 2027 (World Energy Outlook 2023). This push for energy independence is likely to continue, driving investments in renewable energy and energy efficiency.

In conclusion, the Russia-Ukraine conflict has had significant long-term implications for global energy supply chains, influencing energy security and the transition to renewable energy sources. The disruptions in energy supplies have highlighted the vulnerability of global energy supply chains to geopolitical risks, while also creating opportunities for the transition to renewable energy. The push for energy independence and diversification is likely to continue, driving investments in renewable energy and energy efficiency.