The current energy price crisis explained

The current energy price crisis explained

The Russian invasion of Ukraine has sparked an energy crisis, highlighting the important role renewable energies play for Europe to remain geopolitically and energy independent. 

In this article, we’ll explain: 

  • Why are energy prices rising?  
  • What are the effects of rising energy prices on the economy and the stock markets?
  • What is the solution?
  • How does your Inyova portfolio help you invest in sustainable energy? 

Why are energy prices rising?

Since the beginning of the year, commodity prices have been rising sharply – in particular oil and gas prices. The price of oil has increased by more than 50% and natural gas prices have almost doubled.

Russia’s invasion of Ukraine has created a shortage of oil and gas supply, which has resulted in sharp price increases. Russia is the second-largest gas and the third-largest oil producer (17% and 12% of the global output, respectively).

The shortages are primarily due to sanctions put in place for trade with Russia. For example: SWIFT payment system restrictions, embargoes by countries such as the USA and the UK banning Russian oil imports, and companies such as Shell, BP and Exxon Mobile refusing to buy from Russia. 

Additionally, the idea of Europe stopping the import of Russian oil and gas is gaining traction, driving prices even higher. 

What are the effects of rising energy prices on the economy and the stock markets?

Energy is an important factor for the production of goods. Most companies rely on energy to produce their products, so an increase in energy prices influences the production output, shipping costs and profitability of companies and drives up prices for a lot of things people buy. 

High energy prices also play a major part in driving up inflation, i.e. the increase in prices and fall in the purchasing value of money. An increase in inflation negatively affects the economy – as people spend more money on energy supply, they reduce their spending on other products like restaurant visits or movie tickets. 

Furthermore, the energy price shock comes at a time when inflation is already high due to increased consumer spending and prevailing supply-chain issues originally caused by the pandemic.

In order to counter longer-lasting elevated inflation, central banks may raise interest rates – in fact, the US Federal Reserve has done just that. An increase in interest rates makes borrowing for things like a home, starting a business or financing an existing one more costly and therefore can have the adverse effect of further slowing down economies.

What is the solution?

Overall, the current energy crisis is proving that we are too dependent on fossil fuels and their suppliers. An earlier shift towards renewable energies and reduction of dependence on fossil fuels could have significantly reduced the economic shock of the recent events.

In the short to mid term, energy costs will likely remain elevated. To soften the blow to consumers, countries are already thinking about subsidies on energy prices or other incentive/bonus schemes.

This means that for the immediate future, this will likely result in countries boosting their unsustainable energy production by ramping up the production of fossil fuels or re-activating/extending unclean energy sources.

However, in the mid to long term, it is clear that Europe needs to become more energy independent and less exposed to external threats, by increasing investments in renewable energies.

How does your Inyova portfolio help you invest in sustainable energy? 

Inyova portfolios are well diversified in industries and countries and have very low to no exposure to fossil fuels and Russia. Therefore, they are built to withstand global crises and economic shocks such as the current energy price crisis.

Inyova also offers the ability to directly invest in future-proven technologies such as renewable energy, zero-emissions transport and energy-saving solutions. For example, Vestas Wind Systems A/S is the largest wind energy producer worldwide and has installed wind turbines with a total capacity of over 150 GW in 85 countries. At regular operating capacity, this corresponds to avoiding the consumption of over 250 million barrels of oil per year. 

Companies that offer clean hydrogen and zero-emission fuel cell solutions have the potential to heavily reduce our reliance on petrol, diesel, gas, and kerosene. Plug Power Inc is a champion in this space, offering fossil-free alternatives for transportation from road vehicles to aerospace.  

Still, the greenest energy is the energy we don’t use. Energy-saving technologies are ultimately one of the best solutions for the climate crisis and cutting dependency on fossil fuels. Nibe Industrier AB offers various energy-saving solutions, such as highly efficient heat pumps that work for both heating and air conditioning using thermal energy from the ground.

Whether it be for political, environmental or economic reasons, it is vital that the world adopts sustainable energy at a much faster pace. With Inyova, everyone can invest in a better tomorrow.

If you have any questions, please reach out to our Customer Success Team on +41 44 271 50 00. We are always happy to help you!

Disclaimer: The past performance of financial markets and instruments is never an indicator of future performance. The statements or information contained in this document do not constitute a recommendation, offer, invitation to buy or sell securities or financial instruments. Inyova AG accepts no liability whatsoever for the reliability and completeness of the information contained in this article. Liability claims against Inyova AG are published in this document are excluded. In addition, the statements contained in this document reflect an estimate at the time of publication and are subject to change. References and links to websites of third parties are outside the area of responsibility of Inyova AG. Any responsibility for such websites is disclaimed.
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