After the annexation of the Crimean peninsula in 2014, Russian energy supplies were not affected following the imposition of Western sanctions. However, today, the picture is more aggressive on both fronts and we cannot rule out extreme scenarios. After all, Russia’s energy and foreign policies are closely intertwined.
In oil markets, it is not all doom and gloom. OPEC is still holding significant spare capacity accounting to 4% of global production – a level which is much higher than what we saw for instance at the beginning of this century when it accounted to less than 1% of the world’s production around 2005. Saudi Arabia, the United Arab Emirates and Kuwait hold the bulk of that capacity. Additional barrels can also come from the release of a coordinated and more significant share of the Strategic Petroleum Reserves, so will a deal with Iran. But it is not only supply. High prices can cause demand destruction.
Dr Nakhle doubts that OPEC+ will end any time soon but emphasises that the organisation can do more to “stabilise the market” should it want to.
In addition to oil, the Gulf countries in particular have close trade ties with Russia. Following the Crimea annexation in 2014, we saw an increase in investment by GCC Sovereign Wealth Fund in Russia.
With respect to gas pricing, Dr Nakhle explains that market pricing comes with volatility. This does not mean such a mechanism should be condemned. On the contrary, for years, Europe enjoyed ‘cheaper’ gas through such pricing.
The Russian invasion of Ukraine has pushed many countries in Europe to revisit their energy policies with countries like Germany considering expanding their LNG infrastructure.
“A suspenseful start for oil prices in 2022“, Dr Carole Nakhle, Feb 2022
“No endgame for Ukraine“, Christof Rühl, Feb 2022
“Russia’s invasion of Ukraine: The impact of sanctions“, Dr Carole Nakhle, Feb 2022
“OPEC+ under pressure to increase output following Russia’s invasion of Ukraine“, Dr Carole Nakhle, Feb 2022
“Global Economy and Energy Markets Weekly Commentary – 27th Feb ’22“, Christof Rühl, Feb 2022
“Ukraine and Oil“, Dr Carole Nakhle, Feb 2022
“Can Russia withstand another wave of sanctions?“, Dr Carole Nakhle, Feb 2022
“EU Energy Policy amidst the Current Gas Crisis“, Dr Carole Nakhle, Feb 2022
“Did Russia deliberately cause the gas crisis in Europe?“, Dr Carole Nakhle, Jan 2022