Unless you’ve been living under a rock for the past year, odds are you’re familiar with the ongoing energy crisis plaguing Europe and other parts of the world. As developed nations drag their feet in adopting green and renewable energy, the ongoing Russian invasion of Ukraine is resulting in fuel supply shortages for most European countries. Furthermore, the recent closure of the Nord Stream 1 pipeline threatens Europe’s energy security while further increasing gas prices. However, the oil crisis also has a knock-on effect on the cryptocurrency and financial markets. Plus, rising energy costs are prompting an industry-wide shift towards green and renewable energy sources. Nonetheless, the ripple effect of the recent gas and oil crisis in Europe can be felt globally, with many analysts comparing the situation to the 1970s energy crisis and the OPEC oil embargo.
In this article, we’re going to dive deep into the 2022 energy and oil crisis. We explore some of the causes of the energy crisis and discuss how fuel shortages impact the cryptocurrency market. Additionally, we look at some of the reactions to the energy crisis from affected nations and what they can do to prepare for ongoing fuel shortages.
The 2022 Oil and Energy Crisis
The COVID-19 pandemic resulted in most major economies grinding to a halt. The loss of economic output and productivity left most major economies with little option other than printing money to help businesses and individuals. While many economists cite this as enough of a trigger to cause mass inflation, the effects of war in Europe made it clear that COVID-19 was only the beginning of a much larger-scale economic decline.
The cost of oil and gas has risen dramatically for most people in recent months. Russia’s illegal invasion of Ukraine has created several fractured relationships between Russia, Europe, and the western world. This has resulted in dwindling fuel reserves throughout Europe heading into winter. The Nord Stream 1 pipeline channels gas from Russia into Europe. The politicization of gas supplies has resulted in Russia’s largest gas pipeline being closed for several weeks. As such, it prompts fears about fuel shortages throughout the continent.
The fuel shortages looming over Europe are worsening due to the cost of living. It’s not just gas prices that are rising. Basic groceries, rents, and expected mortgage payments are soaring in many parts of the world. One of the many side effects of the cost of living crisis is fuel poverty. Moreover, many households cannot afford the energy they could only a year or two ago, which is made worse by the ongoing fuel shortages.
When the cost of living rises and fuel becomes scarce, the poor often suffer the most. People in many parts of the world are adapting to this new reality by looking for alternative energy sources and rationing what fuel they can. However, with no large-scale initiatives in place, it could be several years before renewable and green energy sources can fill the deficit.
Nord Stream 1
Nord Stream 1 is the primary natural gas pipeline running from Russia to the Baltic Sea and into Europe. As the number one source of natural gas for Europe, Nord Stream 1 is essential for Europe’s energy security. In late August 2022, a stoppage in the Nord Stream 1 pipeline caused severe disruption to European gas supplies. Although the status of the repair and causes of the damage are somewhat unclear, reports suggest that a major pipe had burst, causing the pipeline to be shut down for repair.
However, some onlookers believe that Nord Stream 1 was deliberately sabotaged in an attempt to jeopardize Europe’s fuel security. Russian President Vladimir Putin claims that the damage was caused by the United States and its allies. Furthermore, speculation over a “deliberate act” of sabotage is causing uncertainty about the pipeline’s future. As the cause of the damage is still unclear, insurers are unlikely to renew any contracts that could restart the flow of natural gas from Russia into Europe. Moreover, some suggest that the damage to the Nord Stream 1 pipeline may be an act of terror or an act of war if it was the result of a deliberate attack.
Winter 2023
While the effects of the oil crisis are already present, many onlookers predict that Europeans could face significant challenges during the winter of 2023. Currently, there appear to be ample fuel supplies heading into the colder months of 2022. However, if the war in Ukraine persists or escalates further, things could become much worse for ordinary people if the already dwindling fuel reserves are not replenished.
According to Qatar’s energy minister, Saad al-Kaabi, the European energy crisis could extend to the year 2025. Several leading European nations have begun discussions with Qatar’s state gas company, QatarEnergy, to secure liquified natural gas imports in an attempt to “wean themselves off Russian fossil fuels” and prevent the ongoing oil crisis from worsening. However, while many countries look to other fossil fuel providers to tackle the energy crisis, discussions around wind, nuclear, and renewable energy continue to take precedence.
That said, Russia supplies around 40% of Europe’s gas. Furthermore, the global push towards green and renewable energy is lagging, meaning it’s likely that sourcing other gas and oil providers will be a necessity regardless of any green initiatives in place. On the other hand, most oil and gas-producing nations will struggle to make up for the deficit left in Europe.
Moreover, Europe’s ongoing energy and oil crisis cause unrest among other nations outside the continent as they look to secure their own energy reserves. As most oil and gas providers prefer long-term contracts, Europe is experiencing challenges in securing energy in the mid-term while local alternatives are put in place.
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EU Gas Price Cap
Despite the severity of the European fuel shortages and their implications on global markets, EU leaders met recently to finalize the details of a gas price cap to reduce the burden on households and businesses throughout the continent. News of the breakthrough was met with a seven percent decrease in gas prices within hours of the price cap endorsement after much deliberation between member states.
The EU gas price cap aims to prevent spiraling inflation as a result of increasing gas prices. However, policymakers in Germany and the Netherlands believe that the EU gas price cap could force energy providers to sell gas to other non-EU nations at a premium. Nonetheless, the agreement could allow the EU to purchase gas at scale without experiencing high levels of market volatility.
Moreover, the EU gas price cap aims to ensure European energy security while preventing secondary markets from capitalizing. The European gas industry is largely skeptical about the arrangement, citing government interference in the markets as a detriment to investors. That said, many believe that a cap on energy prices is essential to prevent large-scale business closures and fuel poverty.
Hard Assets
During periods of economic downturn throughout history, people look towards hard assets to preserve their wealth. Assets such as gold, commodities, and stocks are traditional hedges against inflation, as they historically outperform fiat currencies. However, Bitcoin is quickly becoming the go-to hedge against inflation for many investors.
Like gold, Bitcoin is fungible. It works well as a medium of exchange and a unit of account. What’s more, Bitcoin is verifiably scarce. There can only ever be 21 million Bitocin mined into existence. Also, as many as 8 million Bitcoin are believed to be lost forever. As such, it makes the maximum supply even lower. Furthermore, nobody can debase Bitcoin as they can with fiat currencies.
Moreover, as governments and central banks print money, issue masses of bonds, and participate in quantitative easing, the purchasing power of fiat currencies declines. Recent global events may well justify such actions. However, the people hoarding cash under mattresses are the ones who tend to suffer. As such, Bitcoin is becoming an increasingly prominent asset for investors looking to preserve their purchasing power.
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What the 2022 Oil Crisis Does to the Crypto Market
The European gas and oil crisis is escalating into a full-blown international energy crisis. The knock-on effects are disrupting almost every industry and creating economic uncertainty for businesses and individuals globally. Also, stock prices have plummeted since the outbreak of war in Ukraine, prompting a market-wide downturn. The crypto market is no exception to this. Many analysts view the energy crisis as a catalyst for an extended bear market, which some predict could go on for several years. However, innovation and development in the Web3 space continue regardless of the economic uncertainty brought about by the energy crisis. In fact, many projects continue to develop and create new technologies irrespective of the bear market.
On the other hand, it’s worth noting the impact of rising fuel prices on cryptocurrency mining. The Bitcoin network uses roughly the same amount of energy per year as a country like Sweden or Argentina as part of its proof-of-work (PoW) consensus mechanism. Plus, the amount of electricity required to verify transactions on the Bitcoin blockchain increases as the network grows. However, modern blockchain projects tend to opt for the proof-of-stake (PoS) consensus algorithm to remedy this issue, as it requires much less energy.
Furthermore, the 2022 oil crisis prompts an industry-wide shift towards green and renewable energy sources. Mining farms worldwide are taking advantage of various sources of wind, solar, and surplus gas. Additionally, many energy companies are working in partnership with cryptocurrency mining firms to minimize the environmental impact of the Web3 industry.
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What the 2022 Energy and Oil Crisis Does to the Crypto Market – Summary
The European oil crisis is causing people to go without heat through winter. People are going to extreme lengths to stay warm during the winter months. In Germany, there have been multiple reports of people selling fake firewood online as people scramble to find alternatives to the dwindling supply of Russian oil. The sentiment surrounding the European energy and oil crisis harkens back to the feeling of unrest experienced throughout much of the world during the OPEC oil embargo in the 1970s. However, ongoing tensions in Ukraine and the ever-growing demand for cheap electricity could make the fallout of this particular crisis more complex and nuanced, lasting years rather than months.
Nonetheless, innovation in the Web3 space continues. Despite the bearish sentiment flooding most asset markets, Web3 adoption is rising. Also, many projects see the bear market as an ideal time to build. As such, an extension of the bear market could ultimately lead to a stronger rally to the upside further down the line.
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