One year of war in Ukraine

On 24 February 2023 it was one year since the Russian invasion of Ukraine, a war whose human cost lies beyond any economic calculation. On the economic front, and against the worst forecasts, Europe had come through the winter without supply cuts and the price of gas had fallen sharply from its peaks.

A year earlier, the question governments, industries and families were asking was whether there would be enough energy to get through the cold months. The answer, at least for that first winter, was favourable, and the outcome is an opportunity to review what was done well, what it cost and what lessons it leaves for any business that depends on energy. For those running a business, the anniversary is also an occasion to ask which decisions taken during the crisis still make sense and which responded to an emergency that has passed.

A better winter than feared

A year earlier, the great fear was running out of gas to heat homes and industry. It did not happen, and the relief benefited above all the companies most dependent on energy, such as consumption-intensive industries or those with processes that cannot be interrupted, which stopped facing the risk of having to halt production.

That the worst scenario did not materialise does not mean the risk was imaginary. It was the result of specific decisions and a collective effort that translated into lower consumption and new supplies. It is worth bearing in mind when thinking about the future: what avoided the disaster was the response, not the absence of danger. Factors that depend on nobody’s will, such as the conditions of the winter, also played a part, and they cannot be taken as repeatable either.

A fast but costly adaptation

The adaptation was fast but costly: new sources of gas, savings and higher prices. Replacing a supplier that covered a very large part of demand means finding other suppliers, other routes and other infrastructure, and all of that has a cost that ends up spread among those who consume energy.

That bill was paid by companies and households, and it did not vanish when gas came down: part of the costs had already passed into the prices of other goods and services. That is why inflation does not recede at the same pace as the price of energy, and why many businesses kept feeling pressure on their costs even after the energy bill had eased. Some companies reorganised processes to use less energy and others renegotiated contracts with new suppliers. Those decisions cost money and time, but they leave a more flexible structure that may prove useful in future.

What companies learned

Companies that diversified suppliers and contracts came out stronger. Depending on a single supplier, a single country or a single type of energy contract concentrates risk: when that link fails, there is no alternative. Having several sources, or at least several contracting options, gives room to react.

It is worth reviewing periodically how supply is structured, what share of energy cost is at a fixed price and what share at market price, and how much room is left in the face of a new shock. It is also useful to measure how much energy each process uses: what is not measured cannot be reduced, and saving is the quickest and cheapest way to gain resilience. A simple energy contingency plan, setting out consumption priorities, available alternatives and the people responsible for deciding, is a cheap document to produce and very valuable on the day it is needed.

Resilience is not improvised when the crisis arrives: it is prepared beforehand.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.