The threat to the global economy is real. The war has disrupted supplies of oil, gas, fertilisers, and another natural materials, and any production capacity may stay impaired for the long term. For now, oil prices are being cushioned by the evidence release of petroleum reserves onto the marketplace and by expectations that the war with Iran will end swiftly. With a crucial share of the world’s energy resources passing through the Strait of Hormuz, even partial disruptions can push prices higher and force buyers to compete for the same supplies.
A decline in the supply of key natural materials will yet should be met by lower demand. But due to the fact that cutting consumption of essential natural materials is painful for everyone, request and supply may come back into balance at much higher prices. The consequences would ripple outward. Higher fertiliser prices, for example, could reduce sowing across the world, leading to smaller harvests and higher food prices. For now, there are simply not adequate key natural materials to go around.
These developments have led Fatih Birol, head of the global Energy Agency, to call the situation “the biggest energy safety threat in history”. The IEA warns that oil prices are “not reflecting the severity of the problem” and that restoring supply to erstwhile levels may take years. In another words, the IEA appears far gloomier about the consequences of the war with Iran than financial markets, which proceed to price in a swift end to the conflict and limited long-term damage.
Lithuania’s physical access to oil and gas is highly secure. Crude oil supplies to the Mažeikiai refinery do not depend on the Strait of Hormuz, and the refinery’s operator, Orlen Lietuva, has not identified any risks to its supply of crude oil or another key natural materials. The refinery exports almost 80 percent of its oil products, setting Lithuania apart from its neighbours as a regional supplier of refined fuels. As for natural gas, Lithuania’s access is secured by the state-owned LNG terminal Independence.
If prices soar, it is worth remembering that Europe remains 1 of the richest regions in the world. European buyers are far better placed than those in most countries to afford oil, gas, fertilisers, and another natural materials on global markets.
All of this means that even under utmost energy-market stress, oil and natural gas will proceed to flow to Lithuania, even if at a higher price.
The main threat to Lithuanian businesses does not stem from the physical supply of oil and gas resources, but from decisions made in another European capitals. Governments across Europe have already rolled up their sleeves: cutting excise duties, introducing price controls, and paying out subsidies. They are sending a clear message to European citizens: keep buying oil and gas, and taxpayers will ft the bill.
If another EU countries begin heavy subsidising energy consumption, Lithuania’s government will besides come under force to respond with fiscal support so that Lithuanian companies do not lose competitiveness. In specified a race to the bottom, there would be no winners in Europe. The main beneficiary of artificially sustained request for oil and gas would be our large enemy to the east, which is already filling its war budget with higher oil and gas revenues. The main loser would be the developing world.
This script already played out in 2022-2023, and it may happen again. While any countries are already being forced to limit the usage of air-conditioning and prepare for the hazard of food shortages, European governments can afford to spend tens of billions of euros on subsidies and taxation relief. By crying wolf and “rescuing” citizens who do not request rescuing, European governments may push the Global South into yet another crisis of deprivation.
Lithuania is exceptionally well positioned
Lithuania’s economy present is far more resilient than it was at the start of erstwhile crises. Over the past six years, it has withstood the pandemic, China’s economical coercion, the supply shock caused by Russia’s invasion of Ukraine, and the global energy crisis. Despite these shocks, Lithuania came out mostly unscathed: it remains 1 of the fastest-growing economies in the OECD, and its government debt-to-GDP ratio is even lower than it was in 2016. Fitch Ratings has just upgraded Lithuania’s credit rating from “A” to “A+”, citing sustainable growth, favourable medium-term prospects, resilience to external shocks, and a evidence of fiscal prudence.
Today, Lithuania must not panic. Nor should the government make expectations that the state will step in to compensate consumers and businesses for any losses they incur. Poorly targeted fiscal support could increase request for fuel and gas, driving national energy costs higher. If support becomes necessary, it must be directed only at the most susceptible households and energy-intensive businesses.
There are threats to the global economy, but Lithuania is in a better position to face them than always before. While preparing for the worst, Lithuanians have all reason to hope for the best. Over the past 36 years, Lithuania has invested, created value, and prepared for contingencies without allowing fear to dictate its choices. If it stays on course, Lithuania will keep a unchangeable growth outlook and stay a competitive environment for investment.
This article was republished through the partnership between fresh east Europe and LRT English.
Andrius Romanovskis is the president of the Lithuanian Business Confederation (ICC Lithuania)
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