Russian oil bans in the EU could strangle the world
The war in Ukraine is transforming global geopolitics and the dynamics of crude oil.
On the geopolitical front, the United States has relentlessly rallied its allies against Russia. The Russian energy sector has still not been directly impacted by the sanctions. But the repercussions are clear, even as the world struggles to replace Russian oil, gas and coal.
Major players in the energy industry avoid Russian energy companies as much as they can. This has forced markets to tighten and gasoline prices are on the rise. At the gas station near my home in Ontario, the price has hovered around $1.80 per liter for the past few days. This added to the inflationary pressures already created by supply chain issues caused by the pandemic-related chaos.
The United States and its allies are trying to counter by releasing an unprecedented volume of crude from its strategic reserves. And the United States presents itself as the energy supplier of last resort. Last week, Bloomberg reported that the United States was exporting the most oil and petroleum products in history as countries around the world tried to replace Russian supplies. Exports of U.S. crude oil and petroleum products hit a weekly record of 10.6 million barrels per day (bpd) in the week ending April 15, according to data from the U.S. Energy Information Administration.
Yet the hands of the US administration are tied. His efforts to force the Organization of the Petroleum Exporting Countries (OPEC) to turn on their taps don’t seem to be working. It was reported recently that the leaders of Saudi Arabia and the United Arab Emirates have refused appeals from US President Joe Biden.
Now Fox News and other outlets are reporting that the United States has stopped asking Saudi Arabia to pump more oil to combat market disruptions. The relationship between the United States and the oil-rich kingdom has reportedly hit a new low.
Biden’s national security adviser Jake Sullivan reportedly discussed the 2018 killing of Saudi journalist Jamal Khashoggi during a meeting with Saudi Crown Prince Mohammed bin Salman. This angered the prince to the point that he told Sullivan never to talk about it again and to forget that Saudi Arabia was increasing its oil production, The Wall Street Journal reported on Wednesday.
But in a recent call with Russian President Vladimir Putin, the prince agreed to continue to maintain the OPEC+ oil production pact. It was apparently their second such call since Russia invaded Ukraine.
OPEC is therefore in a defiant mood. He told the International Monetary Fund’s steering committee on Thursday that the spike in oil prices was largely due to the Ukraine crisis, signaling that the producer group would not take much more action to increase supply.
“Oil prices have risen, particularly in March this year … mainly due to escalating geopolitical tensions in Eastern Europe and concerns that this could lead to major oil supply shortages, in the amid trade upheaval,” Reuters said, citing OPEC sources.
And all this made the United States realize that it might be impossible for Europe, Russia’s main market, to get rid of Russian oil and gas. A European Union outright ban on imports of Russian crude oil and gas could have unintended economic consequences for the United States and its Western allies, U.S. Treasury Secretary Janet Yellen told reporters on Thursday. Washington. She added that such a ban could do more harm than good.
Russia, meanwhile, is diversifying its clientele. Rather than focusing on Europe to sell crude oil and gas, Russia is now making serious efforts to sell much larger volumes to Asia.
China has always been and continues to be a major trading partner of Russia. India is another customer buying from Moscow in larger volumes. According to Reuters, it bought almost as much in the first months of 2022 as it did in all of 2021. And it refrains from criticizing Russia for its invasion of Ukraine.
Pakistan was also offered Russian crude at 30% below the market price. The previous Islamabad government was enthusiastic. The United States was unhappy and some people in Pakistan now believe that the United States orchestrated regime change there.
New alliances are emerging. The very structure of global energy markets is changing. And after the war, the landscape may have changed dramatically.
Based in Toronto, Rashid Husain Syed is a respected political and energy analyst. The Middle East is his favorite area. Besides writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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