G7 Concludes: Struggling to Keep Apace in a New World Order

On June 28th, before being whisked off by private jet to the NATO summit in Madrid, the G7 leadership released its closing communiqué. Seemingly comprehensive, it however fails to instill confidence. Instead of showing strength, the document lays bare the group’s increasing irrelevance.

After a first day, which centered on the war in Ukraine and the various methods of dissuading Moscow from continuing its activities there, the leaders of the Group of Seven addressed climate change on the following one. A reaffirming of the seven advanced democracies’ “unwavering commitment” to the Paris Climate Agreement, and the need to do more, was dutifully included. They also agreed, at least tentatively, to form a ‘Climate Club’ by the end of the year—an effort to promote green competition among large and emerging economies, which are invited to join.

Yet, while members still, at least officially, promise to end “direct public support for the international unabated fossil fuel energy sector” by the end of this year, in light of a sanctioned Russia, which has starved Europe of energy, the situation has changed. “In limited circumstances” and to help in “accelerating the phase out of our dependency on Russian energy,” the document mentions “the important role increased deliveries of LNG [Liquified Natural Gas] can play,” and “that investment in this sector is necessary in response to the current crisis.” 

Of the fact that Germany (the EU’s largest economy) is starting up its coal plants again in an effort to save on natural gas, no mention was made. The need is indeed acute, however. A recent study by Germany’s energy regulator, which ran 7 scenario’s, showed that in 6 of them gas reserves would be running almost completely dry during the winter months. While Germany’s example is perhaps the most apocalyptic one, it of course is not alone; other EU countries are equally forced into seeking refuge in trusty, older methods for getting their energy. A planned phaseout of energy derived from fossil fuels for the coming winter could therefore not come at a worse time—so it presumably will not, if the ideological straightjacket of a carbon-zero future can be removed, at least temporarily.

Which brings us to the document’s reference to the “increased urgency” of reducing “global greenhouse gas emissions by around 43 percent by 2030.” Knowing coal is once more a key commodity in Europe’s energy markets, and that major economies such as China’s and India’s are recording record uses, makes one question to what degree those who drew up the document still possess a grip on reality.  

After the war in Ukraine started, G7 leaders have been hell-bent on getting their oil (and gas) from anywhere but Russia, so as to assuage pressure on the energy markets and deny the country part of its revenue. This might prove more trying than one would hope for; on Monday, French president Emmanuel Macron was caught on video explaining to U.S. President Joe Biden that no significant volume of oil could be expected from either the United Arab Emirates or Saudi Arabia for at least another 6 months. As Biden has already set in motion a 180-day program to release 1 million barrels of oil per day from the U.S. Strategic Petroleum Reserve, when it’s scheduled end (on September 30th) arrives, the global crude oil market would see even more deficits.

The document goes on to reveal that no final deal on the announced price cap for Russian oil has yet been reached. “In this respect, we welcome the decision of the European Union to explore with international partners ways to curb rising energy prices, including the feasibility of introducing temporary import price caps where appropriate,” it reads. Talks with India and China, major trading partners with Russia (as well as fellow BRIC members), are currently underway. Without their approval, any control on the price for oil originating from Russia would be de facto impossible. 

Before the 2022 summit commenced, the G7 overhauled the 2021 Build Back Better World initiative, creating the Partnership for Global Infrastructure and Investment. The G7 markets it as an alternative to China’s Belt and Road Initiative, and has pledged $600 billion for its funding. Where it will get the resources in this game of catch-up, and whether these can match those of its economic and ideological competitor remains unclear. 

What is conspicuously absent from the document is any mention of the integrity of the social fabric, not only at home but globally. Social unrest and instability due to rising energy costs and inflation are already hammering certain countries, such as Ecuador and Sri Lanka, the latter of which is close to total collapse. In most Western countries, the citizenry is well into feeling the pinch, while its leadership—seemingly undaunted by the fact—could hardly be more unpopular. 

And this is before we have even entered the winter season. The pain caused by a scarcity of energy, combined with decades-high inflation numbers, will be even more acute then.

With such a dangerous cocktail in store, we all await the inevitable outcome.