Textbooks still highlight the 1973 oil shock as a clear example of how an unpredictable event (later called a “black swan”) rapidly altered the scenario and exposed the vulnerability of the current economic system. Will the Russian invasion of Ukraine be the turning point in the trend that was outlining until this summer, at least?
Panorama. There have always been wars of higher or lower intensity, but in this case, the impact on the global economy is channeled through the revolution in the energy market. The issue is that Russia is a leading player in the sector and its influence is noticeable not only in the closest economic space (Central Europe), but also in what it ended up pouring out to the rest of the world through the rise in the price of a barrel of oil (which more than quadrupled the depressed prices of two years ago) and liquefied natural gas, both with globalized export platforms.
For the economist and energy specialist Daniel Montamat, the soaring of the prices of complications, in the oil and gas market, although they still continue to flow through the pipelines towards Europe. “The duration of the conflict will determine if the rise in prices can be maintained over time. A supply cut from Russia or a boycott from the European Union to Russia could happen, but they have not yet joined that of the United States. If so, its value would grow even more”, he speculates.
Montamat believes that, on the supply side, fossil fuels (which continue to make up 80% of the total) have already been producing a substitution of oil for gas; a change in the electricity generation matrix (in favor of wind and solar) and a greater share of electricity instead of oil derivatives in the vehicle fleet.
From the point of view of demand, what they observe are two salient trends: “the introduction of digitization and the appearance of intelligent networks to allow interaction in the market to manage peaks in electricity consumption, on the one hand, and the consumption preference for energies with less carbon footprint, on the other”. Finally, it points out that replacing coal or oil with gas is easier, but other substitutions take more time and investment, and in the context of a war it loses priority. “Between the green paradigm and the urgencies of war, this agenda is deferred over time until the conflict ends”, he concludes.
Matrix. “As a result of these sudden changes in the market, what is observed is the deepening of the change in the energy matrix since the European countries want to break the suffocation due to the Russian presence in their gas supply, especially and begin to explore alternative sources. in non-fossil energies”, explains for his part the specialist in nuclear energy Julian Gadano. Another aspect that he underlines is an acceleration of the climate change agenda: with the faster exit of fossil fuels. “Some are delaying the exit of plants that they thought to disaffect in the short term and others are rescheduling the postponed ones, because nuclear energy is an alternative base to fossil fuels”. It is also linked to innovations in the nuclear industry: smaller reactors that allow working with distributed energies, in addition to the high geopolitical and economic cost that was evidenced by the dependence on Russian energy.
For Gadano, in Argentina this reconfiguration will not be so linear. “There is no long-term energy policy and, furthermore, its orientation is limited, so there are several guidelines and sometimes even conflicting ones. But the bet should be in favor of breaking the dependence on imported energy because this year, for example, the price factor will have a very strong impact on the entire economy”, he explains.
For his part, Montamat maintains that Argentina tripped over the same stone again: the shock is hitting the public deficit and external accounts. “The energy issue is now part of the economic problem. Last year we already had an energy deficit of US$700 million, but this year, with the new prices, it will rise to US$5,000 million”, he emphasizes.
In addition, in 2021 the subsidies that cover the difference between the cost of the system and the political tariffs were US$ 11,000 million and US$ 12,000 million if investments are also added.. “We believe that with the announced updates and rising international prices, they could reach US$14 billion or even more by 2022,” she concludes.
Rates and policy. The diametrically opposed approach to how to finance the public service in terms of energy opened a crack in the matter. Jorge Vasconceloschief economist at IERAL, points to the fiscal impact that the rise in prices will have on a flank that was pointed out from the start by the International Monetary Fund in the rounds of negotiations. It is not for less: “The memorandum aimed to reduce the subsidy account by 0.6% of GDP in 2022, but due to the delay in updating rates and the lack of gas pipelines to transport gas from Vaca Muerta, international prices of liquefied gas would increase the cost of subsidies at 0.8% of GDP“, Add. For Fernando Navajas, chief economist of FIEL, in a recent paper he stated that energy subsidies “have been the stone in the shoe of the macroeconomy
Argentina since in 2005 they began to climb and reached record values
higher than 3% of GDP in 2015”. But this year, “they are affected by shocks of
international prices, due to partial or indexation adjustments paid by demand and
by innovative segmentation mechanisms that have no precedent in the country
nor abroad”, slides. And he points out that the intended tax reduction in this field to be able to “close” the accounts committed to the IMF (US$3,000 million cost) and achieve “only” 1.8% of GDP, should now rise to US$9,000 million.. The calculation that Navajas presents about different estimates that they have made about the percentage of the price that is paid by the consumer is interesting. In 2019, users paid 69% of the cost of electricity and 78% of gas. But last year, these percentages fell to 31% and 45%, although for this year, in the case of gas, it could even drop to 27% if there is not the peculiar segmentation by “Filcar guide”. The fiscal cost is not innocuous: in 2018, subsidies reached 1.1% of GDP, but rose to 2.5% last year. The unknown then lies in what the final number will be for this year.
ultimate impact. Also in the external balance, they are magnitudes to take into account. Although Vasconcelos believes that the final impact will be neutral, nobody dares to sign that certainty. In terms of foreign trade, agro-industrial exports would be increasing by US$ 6,000 million due to the rise in agricultural prices and energy and fertilizer imports would be rising by a similar figure..
All this gives economic activity a different role: will it be a net consumer of foreign currency to import energy and raw materials whose values have skyrocketed, or will it be able to offset them with the sustained trend of better values in global commodity markets? An extra challenge for the Argentine economy: learn from this situation of uncertainty that the demands of sustainability more than compensate when you have to start from scratch.
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by Tristan Rodriguez Loredo
