World on the brink of the biggest energy crisis in history - OUR ANALYSIS
The global oil market is once again entering a period of sharp turbulence. Geopolitical conflicts, threats to critical energy transport routes, and rising inflation expectations have pushed energy prices upward. At first glance, such developments might seem to benefit oil-exporting countries. After all, higher prices mean higher revenues. Yet the reality of the modern energy economy is far more complex. Extremely high oil prices can be just as problematic for producers as a dramatic collapse in the market.
This point was clearly articulated by President Ilham Aliyev during a global forum in Baku. The Azerbaijani leader openly challenged the widespread assumption that oil exporters benefit from uncontrolled price spikes. According to Aliyev, the idea that producing countries are interested in sharply rising oil prices is fundamentally flawed.
Photo credit: Azernews
Oil-producing states today are not simply exporters of raw materials. Most operate large sovereign wealth funds that invest in global financial markets, including treasury bonds, equities, and other financial instruments. When global markets fall, these funds often lose far more than producers gain from temporarily higher oil prices. In other words, a surge in oil prices does not automatically translate into a net financial gain for oil-exporting economies.
For this reason, Azerbaijan advocates a balanced and predictable oil price environment rather than volatile spikes.
Many experts share this view. Modern oil and gas industries are deeply integrated into global service networks. Drilling, logistics, engineering services, equipment, and transportation all depend on global supply chains. When oil prices rise sharply, the cost of these services increases as well.
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In practice, this means that when oil jumps from $70 to $100 per barrel, the additional revenue is often offset by rising costs. Higher prices for metals, services, transportation, and equipment increase operational expenses. As a result, the apparent windfall from higher oil prices can quickly disappear once the full economic cycle is considered.
History provides instructive examples. The dramatic surge in oil prices in 2008 did not generate the long-term dividends many exporting countries expected. Conversely, the collapse of oil prices in 2015–2016 actually helped countries like Azerbaijan save billions of dollars.
When global commodity and service prices fell, major projects were implemented far more cheaply. Large-scale developments such as the Southern Gas Corridor and the Shah Deniz 2 project were completed at significantly lower costs during that period. It is worth recalling that in 2016 the price of Azeri Light crude dropped to around $41 per barrel — a level that forced efficiency but also reduced project expenditures.
Another structural factor often overlooked in discussions about oil prices is the effect of expensive hydrocarbons on the energy transition. When oil becomes too costly, investment in alternative energy accelerates dramatically. Solar and wind projects become more economically viable, while electric vehicles gain competitiveness against traditional combustion engines.
In this sense, excessively high oil prices may unintentionally accelerate the decline of long-term global demand for hydrocarbons.
High fuel costs also slow global economic growth. As energy prices rise, inflation spreads through nearly every sector of the economy. Central banks respond by raising interest rates, making credit more expensive. Higher borrowing costs affect the entire energy industry, including upstream investments in exploration and production.
Moreover, elevated oil prices weaken the competitiveness of non-oil industries within producing economies, increasing dependence on hydrocarbons rather than encouraging economic diversification.
Yet some countries are clearly benefiting from the current price surge. According to the Financial Times, the ongoing war in the Middle East is generating roughly $150 million in additional daily revenue for Russia’s state budget. Analysts estimate that by the end of March, Russia could accumulate between $3.3 billion and $4.9 billion in extra income if average prices for Russian crude remain between $70 and $80 per barrel.
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For Russian oil, this represents a substantial increase. As recently as February, the average price was closer to $45 per barrel. Some observers have even described Russia as one of the main beneficiaries of the current geopolitical turmoil in the Middle East.
Meanwhile, the oil market itself remains extremely volatile. On Friday, 13 March, prices slipped slightly after reaching their highest levels since 2022. According to market data, May futures for Brent crude on the ICE Futures exchange in London were trading around $100.35 per barrel, marginally below the previous day’s closing price.
Only a day earlier, on 12 March, Brent had surged to $101.59 per barrel, while the American benchmark West Texas Intermediate showed a similar increase.
Governments are now attempting to calm the market. The International Energy Agency has announced an unprecedented release of 400 million barrels of oil from strategic reserves to stabilise global supply. The United States alone plans to release 172 million barrels over approximately four months.
According to Donald Trump, these reserves will be replenished once the market stabilises. The U.S. Strategic Petroleum Reserve remains the largest emergency oil stockpile in the world.
In theory, such releases could temporarily offset disruptions in the Strait of Hormuz — one of the most important energy chokepoints on the planet. Around 20 million barrels of oil pass through the strait each day. In this context, the announced 400-million-barrel release could compensate for roughly 20 days of supply disruption.
However, oil released from reserves does not reach consumers instantly. Logistical delays mean that it may take weeks or even months before additional supplies reach the market.
While producers face their own economic calculations, the immediate impact of price instability is felt most strongly by consumers worldwide.
According to Deutsche Welle, gasoline prices in Germany have already crossed the two-euro-per-litre threshold for the cheapest E10 fuel. Berlin is even considering limiting gas stations to raising prices only once per day.
In the United States, one of the world’s largest oil producers, gasoline prices have reached their highest level since 2024. President Trump described the increase on social media as “a very small price to pay” for neutralising the Iranian nuclear threat. Yet public opinion appears divided. A Reuters poll indicates that only about a quarter of Americans support Washington’s current policy toward Iran.
Asia may face even greater challenges. According to the International Energy Agency, roughly four out of every five barrels of oil transported through the Strait of Hormuz are destined for Asian markets.
Signs of strain are already emerging. In Thailand, government officials have been advised to work remotely, reduce travel, and use stairs instead of elevators to conserve electricity. In the Philippines, authorities have introduced a four-day workweek for government employees to mitigate rising energy costs.
Against this backdrop, experts increasingly warn that the world may be approaching the most severe energy crisis in modern history. If the past teaches anything, it is that extreme oil prices — whether too high or too low — rarely bring stability to the global economy.
By Tural Heybatov
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