Two years of Russia’s war on Ukraine: the gas crisis, price rises and energy security

February 24 marks two years since Russia launched its full-scale invasion of Ukraine. It has been a humanitarian catastrophe for Ukrainians, 10,000 of whom have died, including 560 children, with far greater numbers living under occupation, displaced and plunged into poverty.

In the aftermath, several countries pledged to end or restrict Russian crude imports to weaken the Kremlin’s profits and stifle the war effort. Russia’s economy relies on fossil fuel exports but European nations also depended on oil and gas from Moscow. A few years before the war, Russia was the dominant supplier of gas to the EU’s 27 states and the UK.

For three years, the world has been in the grips of a gas price crisis. Energy bills began to creep up in 2021, even before Russian tanks massed on the Ukrainian border. The war turbocharged the crisis, sending shockwaves across the globe and driving up the cost of gas.

International Monetary Fund (IMF) research revealed Britain was the worst hit country in Western Europe because of an overreliance on gas, which is used to generate 40% of electricity and heat 85% of homes. Less than half of French and German homes are heated with gas. British houses are also the least energy efficient in Europe.

Energy security

The term energy security grew in popularity, with members on both sides of the political divide talking up how to stop Britain being hooked on pipelines from foreign regimes. But is Britain any more secure now than it was at the start of the invasion?

Instability in the Middle East and the Red Sea has grown since Hamas’ October 7^th attack in southern Israel, followed by an Israeli offensive in Gaza and now US engagement with Iran-backed Houthis in Yemen. Houthis have launched assaults on ships in the Red Sea, so far commercial vessels from 44 countries have been attacked. 15% of global seaborne trade passes through the Red Sea, this includes 12% of oil and 8% of gas. The US and UK have begun a joint operation to prevent attacks and protect roughly $1 trillion of annual trade. And there are fears growing for the Straits of Hormuz, between Iran and the Arabian peninsula, considered the world’s most important crude oil transit point.

As of March 2023, the UK Government said it had banned all coal, oil and gas from Russia. But fossil fuel imports from other authoritarian petrostates surged. £19.3 billion’s worth of oil and gas was imported from countries bordering the new Middle East crisis - Algeria, Bahrain, Kuwait, Libya, Qatar, Saudi Arabia and the United Arab Emirates. The UK’s main supplier of gas is now Norway, followed by Qatar and the US.

Price surges

Half a year into the Ukraine war, gas was nine times more expensive than renewables. The UK market is structured so that the most expensive form of power – gas – dictates the price of all electricity. During the crisis, wholesale prices for gas reached record highs. In the first year, the average UK household spent £800 more on gas. Many governments across Europe, including in Britain, responded with caps and bill controls. With the current price cap, the average annual bill for gas and electricity is £1,834. This is 51% higher than in winter 2021-22, before the invasion. For some households, the current price cap is still higher than what they paid at the peak of the crisis, as the Government’s Energy Bill Support Scheme has ended.

A year into the war, the IMF predicted the UK would lose 8% of its spending power, compared to 4% in Germany and Spain. But there was deep inequality in the distribution of tighter budgets, the research showed, with the poorest 10% forking out 18% of their budget on energy in 2022, while the richest 10% spent 6%.

It wasn’t just energy bills that shot up, as the tendrils of the crisis reached into everything from fertiliser costs, to supply chains and food prices. The most commonly-used fertilisers in the UK are made with natural gas and the crisis added £78 million a month to farmers’ bills. In 2022, 88% of food price inflation was down to spiking oil and gas prices and the impact of climate change.

British households spent an extra £605 on food in 2022 and 2023, compared to 2021, ECIU analysis found, because of the twin impacts of climate change and historically high oil, gas and fertiliser prices. As the world consumes more fossil fuels, storms, droughts, wildfires and floods become more extreme, leading to crop failures and food shortages that raise the price of every meal.

Renewables on the horizon?

In 2023, existing renewables – wind, hydro and solar – saved Britain from burning an extra 200TWh of gas or the equivalent of heating 16 million homes for a year. Even before the crisis drove up the price of gas, renewables were cheaper. In 2021, the global average lifetime cost of electricity generation was 11% cheaper for solar and hydropower than new fossil fuel projects and 39% cheaper for onshore wind.

Building more renewables projects now would safeguard Britain’s energy security, cut bills and reduce the severity of climate change impacts by helping to achieve net zero emissions. But the last Contracts for Difference (CfD) auction saw the Government fail to secure any new wind projects. This meant the UK public missed out on energy bill savings of up to £1 billion. Even with inflation and rising supply chain costs for the build of new offshore wind projects, this form of renewable power generation is still about a third cheaper than gas. But there are encouraging signs the Government may adjust the parameters of the next auction to give it a stronger chance of success.

Meanwhile, PM Rishi Sunak pledged to “max out” North Sea oil. But the granting of new licenses was denounced as a “gimmick” by the opposition. The majority of fossil fuels left in the seas off Scotland are oil and 80% is exported, so it’ll do little to achieve energy security. Oil extraction from the Continental Shelf would account for less than 1% of a tank of petrol used in the UK in 2030.

Trapping in heat

The UK could insulate itself against the price shocks caused by gas crises by doing more to trap heat inside homes. Britain’s old draughty housing stock is the least energy efficient in Europe. Homes haemorrhage heat through floors, roofs and doors three times faster than houses in Germany and Norway. This means British bill payers spend a far greater proportion of their household budget on staying warm.

It was hoped relief would come in the form of new energy efficiency targets for the private rented sector. Rental properties are in the worst condition of any homes in Britain. 1.6 million children live in homes that are damp, mouldy and cold. But the new energy efficiency targets for the rented sector were scrapped by the PM in September. This meant 250,000 homes would miss out on upgrades, leaving renters poorer and colder, paying £40 million a year more in gas bills. Many of these renters are the most vulnerable in society: low-income families and people with long-term health conditions.

Ending Britain’s gas dependence

Two years into Russia’s war on Ukraine, the UK is shown to be the most susceptible country in Europe to price shocks caused by a change in the supply of gas. The curtailed spending power of Britons was more than twice as bad as that for Spaniards and Germans. It is the most vulnerable in society – low-income families, children in draughty, mouldy homes, those with health conditions – who are most at the mercy of authoritarian regimes.

As battle lines are drawn over renewable energy, with some pundits warning heat pumps are too big or too noisy, it’s worth noting true energy independence will only come once Britain ends its reliance on fossil fuels for power.