While rising energy prices have a small impact on FDI flows on their own, they are affecting companies' expansion plans.
Rising energy prices have been a concern on a global level for more than a year now, for both businesses and end consumers. Initial pressures on consumer price indices started in mid-2021, but a more severe impact on the energy sector was brought about by Russia’s invasion of Ukraine.
The conflict caused a particularly severe energy crisis in the European gas sector, 40% of which is sourced from Russia. Following the invasion of Ukraine, it quickly became evident that the continent’s energy supply could no longer so heavily depend on an unreliable and risky provider such as Russia.
But to what extent are MNCs’ expansion plans being impacted by the rise of energy prices, and what is the correlation between that and FDI flows?