Hello! Oil. It’s on everybody’s lips this week.
It’s affecting the markets as investors are seriously considering the possibility that war in the Middle East could lead to stagflation. Stagflation is the combination of below-trend growth and above-trend inflation. The main source of stagflation fears is the surge in oil prices, and the biggest question for world markets now is how long those prices will remain elevated. What’s this got to do with sustainability, you ask? Well, sit tight, and you’ll find out. But first, let’s take a look at some of the top social and governance news that’s also on my radar: |
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A satellite image shows an oil terminal at Kharg Island, Iran. Planet Labs PBC/Handout via REUTERS |
Iran’s oil saga + stagflation = bad for sustainability |
As I mentioned earlier, investors are spooked about a stagflation shock, just like 50 years ago when disruption to global energy supplies sent inflation surging, and battered growth.
Iran is the third-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC). The nation pumps about 4.5% of global oil supplies, with output of about 3.3 million barrels per day (bpd) of crude, plus 1.3 million bpd of condensate and other liquids.
Oil prices jumped to $119 per barrel on Monday as production cuts in the Middle East spread, with Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates all affected. Brent oil futures prices, however, dipped to $88.05 per barrel by Tuesday morning. When oil prices surge, sustainability progress tends to stall. We’ve already seen major energy companies and governments rolling back climate commitments last year. Click here for the Sustainable Switch on how we’re not sustainably switching. Now, governments are slowing clean-energy policy rollouts amid high energy costs. |
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Europe’s energy pledges to business |
Let’s take a look at Europe, for example. The European Union has scrapped plans for an emissions label for steel in its upcoming "made in Europe" law, which had initially been intended to help make green steel central to efforts to revive industries, a draft of the proposal showed.
Additionally, a document seen by Reuters showed that the EU is examining energy taxes, network charges, and carbon costs as possible areas for measures to ease pressure on industries hit by high energy prices.
Brussels is looking for quick fixes after companies warned they cannot compete with rivals in China and the U.S., even before this week's surge in oil and gas prices sparked by the U.S.-Israeli war on Iran. The document said that if energy supplies are disrupted further, Brussels must be ready to introduce measures to encourage consumers to use less energy, as it did in 2022 when Russia slashed gas deliveries. The positive is that the Commission paper said its measures would not undermine longer-term climate laws meant to shift Europe toward a cheaper, low-carbon energy system.
The downside is that oil and gas companies are putting pressure on the European Union to pause its methane emissions law, warning it could disrupt Europe's fuel imports when tougher provisions kick in next year.
"The EU cannot afford a self-made regulatory supply shock, even more so in the current geopolitical context," said Francois-Regis Mouton de Lostalot, managing director of IOGP Europe, whose members include ExxonMobil, Chevron, BP, and TotalEnergies.
The U.S. government also demanded that the EU exempt U.S. oil and gas from the methane emissions rules. Brussels has since offered companies more flexible compliance options but declined to roll back the policy, a central pillar of its climate strategy.
It’s not just in Europe. Keep scrolling for a Reuters story on how some countries in Asia are returning to palm oil due to the surging oil prices. | A public transport bus known as matatu lies on top of a car as a result of heavy rainfall in the Grogan area, in downtown Nairobi, Kenya. REUTERS/Thomas Mukoya |
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Kenya floods: Intense rains over the weekend unleashed heavy and widespread flooding, causing some people to drown, washing away vehicles , and disrupting traffic at the country's largest airport. The death toll from the floods in the nation’s capital, Nairobi, and elsewhere has reached 42, the government said. Scientists say global warming is worsening floods and droughts across East Africa by concentrating rainfall into shorter, more intense bursts.
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Palm oil’s back: The Middle East conflict has suddenly made palm oil attractive to the biodiesel industry, pushing prices to their highest level in more than a year as Asian buyers seek prompt shipments, industry officials told Reuters. Indonesia, the world's largest user of palm oil-based biodiesel, said it may revive plans to roll out a B50 grade of palm oil biodiesel mid-year to counter surging crude oil prices. B50 is an equal blend of palm oil biodiesel and conventional diesel.
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Japan nuclear power: It’s been nearly 15 years since a massive earthquake and tsunami struck on March 11, 2011, triggering nuclear meltdowns at the Fukushima Daiichi plant. Now, Japan is returning to a power source it had all but shunned. Click here for the full Reuters insight piece on a group of Japanese residents’ differing opinions on nuclear power ahead of the 15th anniversary of the disaster.
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Board of Peace stalls: Talks to advance President Donald Trump's plan to end the Gaza war have been on hold since last week, when the U.S. and Israel jointly attacked Iran, three people with direct knowledge of the negotiations said. Less than a month ago, Trump secured billions of dollars in pledges for Gaza from Gulf Arab states - countries that are now facing Iranian attacks as the conflict widens.
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White supremacists in Southeast Asia: Across Southeast Asia – home to hundreds of millions of people of different ethnicities and faiths – police are grappling with a surge in teenagers plotting violence inspired by white supremacists such as Australia’s Christchurch Mosque attacker Brenton Tarrant, according to interviews with security officials in Indonesia, Singapore, Malaysia, Thailand, and the Philippines. Click here for the full Reuters article.
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Sticking with the focus on stagflation, the retail and consumer goods sector was already the most distressed in Europe before this oil price surge, according to an index published by restructuring law firm Weil and based on indicators including reduced profitability and rising insolvency risk. Click here for a breakdown of how the Middle East conflict is affecting Europe’s retail sector.
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Sustainable Switch was edited by Tomasz Janowski. |
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