Winter's looming energy crisis

The biggest financial story of the week concerns energy prices, which are surging off the charts in Europe and Asia. Natural gas and coal prices there "just hit their highest levels on record," as Tom Friedman notes in The New York Times, while "oil prices in America hit a seven-year high, and U.S. gasoline prices are up $1 a gallon from last year." If markets don't stabilize soon, especially as the northern hemisphere heads into colder months, we could be in for a very rough winter.

The spike in prices is driven by multiple factors. Energy supplies were cut back during the COVID-19 pandemic because of diminished demand, but demand surged back faster than expected. Suppliers haven't been able to keep up, in part because Europe has been moving so aggressively to pivot away from fossil fuels, in many cases before clean and renewable sources have reached sufficient capacity to replace them.

The consequences could be dire. Europe may be facing a winter of energy shortages that leave people shivering and struggling to pay heating bills. Meanwhile, surging energy prices will likely add further inflationary pressures to the global economy, as the rising cost of shipping and travel gets passed onto consumers around the world. Then there are the geopolitical implications, as energy exporters (Russia, the oil-producing countries of the Middle East) find themselves riding a wave of high prices to increased economic and political power and leverage.

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The pain should be less severe in the U.S. than elsewhere. Yes, Americans will also have to endure higher energy prices and possibly some shortages. But the U.S. also produces a lot of natural gas, making us less dependent on foreign supplies of energy. That self-sufficiency should insulate us from the worst of the energy turbulence around the world, at least for a while — though inflation, already running high, could still end up dampening the economy more broadly.

But maybe the biggest danger, at home and abroad, is that the worst global energy crisis since the early 1970s will power a populist backlash against governments left holding the bag. That could bolster GOP confidence heading into the 2022 midterm elections and upend politics across the globe well beyond the upcoming winter.