If you have a diesel car, maybe fill it up now. Russell Hardy, chief executive of Vitol, the oil trader, says Europe is about to reap the whirlwind of its “systemic shortfall” of the fuel. About half of European diesel imports come from sanctions-hit Russia.
He did not say the word “rationing”, but he and others at last week’s Financial Times Commodities Global Summit acknowledged the possibility. As crude prices rise, Ben Luckock, co-head of oil trading at Trafigura, said he had already seen evidence of hoarding, rationing’s ugly sister.
Some European governments are preparing citizens for sacrifices. If Russia retaliates against its enemies by shutting off the pipelines that supply a majority of Germany’s natural gas, wider energy shutdowns are likely. Priorities next winter would be decided “politically”, according to the German economy minister. Meanwhile, Ireland is resorting to “wartime tillage” incentives to grow crops that could ease a potential food supply crunch.
Depending on what you read, it’s the 1940s, when wartime rationing was in force almost worldwide. Or it’s the 1970s, era of the global oil shock and the three-day working week in the UK. Measures to tackle energy shortages then included power cuts and a ban on television after 10.30pm. (Companies protested that TV “concentrates the family in one poorly lit room”, saving, not wasting, energy.)
How might such scarcity affect how companies are run?
The pandemic provides a rough template. The crisis accelerated decisions that had been on hold as managers digitised and simplified inefficient, analogue ways of working. Constrained by lockdown and travel restrictions, teams found new ways to repair or retool production lines remotely, and experimented with online alternatives to meetings and social events. Some underlings unexpectedly rose to the challenge, while other supposed leaders fell apart.
Unanticipated shocks jolt organisations from the boardroom downwards. Suddenly, strategy is obsolescent or no longer fit for purpose: witness the sudden withdrawal of companies from Russia or the hasty reeling in of stretched supply chains. Decision-making structures are found wanting. People buckle and cultures creak. Companies often find they have to “unlearn existing business processes”, according to a new paper for the journal Business & Information Systems Engineering.
A group of scholars looked at the impact of shocks on business process management. They identified myriad challenges for managers, particularly during what they called the “in-shock phase” when processes are in disarray. But they also pointed to opportunities. Organisations can adapt to the initial blow and the subsequent aftershocks (for instance, the successive waves of Covid infection). For those that pull through, necessity really can be the mother of invention as a “make-do-and-mend” approach takes hold.
For instance, the International Red Cross and Red Crescent movement switches its governance structure to “crisis mode” when it needs to provide relief. On the other hand, Nasa struggled to adapt to the string of disasters that hit the US space agency in the late 20th century, despite overhauling its procedures.
One way companies will react to energy rationing is by trying to secure their supply and improve their efficiency. In the medium-term, they may speed up a shift to renewables — though traders said last week they expected a rush for fossil-fuel alternatives first.
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Having simplified roles, duties and methods to adapt to the shock of war, organisations should carefully consider whether to embed those changes into the way they work. Learning from their own and others’ experience in a crisis has been shown to improve managers’ response to the next disaster.
Of course, what manifests merely as higher food and energy prices in the northern hemisphere will show up as famine in parts of the developing world. In the short term, wealthy European economies should be able to persuade companies and individuals to contribute to ending the horrors endured by Ukrainians. It is spring and turning down the heating is not a big ask for most. Two years of stringent government anti-Covid measures may even have conditioned people to lower their expectations in the wider interest (though anti-lockdown protests suggest the reverse is also possible).
The shocks, and the aftershocks, will keep coming, however.
Sylvie Bermann, former French ambassador to Russia, warned the commodities summit that European citizens were prepared to take short-term pain now, because the Russian invasion had provoked “a lot of emotion . . . But in November, it will be different, because [there’ll be] no more storage and it will be cold and there won’t be so much emotion.”