Is a new era dawning for energy prices? - ERDAL TANAS KARAGÖL

Is a new era dawning for energy prices?

Energy prices, especially gas and oil, witnessed a rapid rise, due to the increased activity of economies post-covid-19, the sharp increase in demand for energy, and the Russian occupation of Ukraine.


Increasing energy prices all over the world negatively affected many economies in different ways, as well as increasing energy prices, the deterioration in economic indicators caused inflation to be brought back to the world agenda.

Inflation is also, at present, one of the main issues that EU countries are struggling with along with many other advanced economies.


Economic stagnation and inflation


The upward curve of inflation has prompted central banks to raise interest rates as one of the tools adopted in monetary policies. It was noticeable that some developed countries and global economies began to enter a state of recovery from inflation, as a result of their central banks resorting to raising interest rates, but in return, this policy made opened them up to another threat:  "economic stagnation".


Meanwhile, all the measures taken by governments to curb the increasing demand and raise interest rates by their central banks led to a decrease in growth, which was reflected in the overall economic situation and the emergence of indications that these economies entered a phase of recession or stagflation.


Economic stagnation reduces energy demand


It is expected that the slowdown in the world economy and therefore the expectations of recession will disproportionately slash energy demand. Due to the strong correlation between energy demand and economic growth, it is expected that energy demand will decrease in both developed and developing countries.

Given the high GDP in developed countries, it is expected that their economic indicators will decrease as the demand for energy decreases. In developing countries, since GDP and economic growth depend on energy consumption, that is, energy demand, as energy demand decreases, economic growth and thus GDP will also decrease. A decrease in GDP will also decrease energy demand.


It is also expected that the recent economic recession, which coincided with the decline in energy demand, will lead to a new era of decline in energy prices in general, and oil prices in particular.


It's up to who to reduce energy prices?


The decline in energy prices will contribute to breaking the trend of inflation and reducing the deficit experienced by many countries in their foreign trade due to their significant dependence on energy, which would be reflected in reducing the current account deficit to a large extent.


In addition to all this, even Russia itself, which benefited more from high energy prices as a result of the war it launched on Ukraine, in which energy was weaponized, will find itself in a less comfortable position as before when energy prices are falling.


Therefore, as much as energy prices can change the balance of the economy and economic activities around the world, they also have the ability to change balances, equations, and even political and international relations.

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