Alexander Manzyuk/Reuters
Russia is now exporting as much oil as it did before its all-out invasion of Ukraine. It’s just about selling to different buyers.
London
CNN
—
After the pandemic and the war in Ukraine and the inflationary shock that followed, the world economy is in a precarious position. The last thing it needs is another nasty surprise.
It nearly did so this weekend, as disaffected Russian mercenaries marched toward Moscow, prompting President Vladimir Putin to warn the country was on the brink of a 1917-style “civil war.”
The armed insurgency has been defused for now, but the biggest challenge to Putin’s authority in 23 years could still herald a period of turmoil and change.
“Putin is in total chaos now,” Jeffrey Sonnenfeld, a Yale University professor and Russia expert, told CNN.
With a gross domestic product about the same as Australia’s, Russia has fallen out of the top 10 in the world’s top ten economies but remains one of the top energy suppliers to global markets – including China and India in the wake of the large-scale – despite Western sanctions Invaded Ukraine in February 2022.
On Saturday, Qatar, also a global energy powerhouse, expressed “great concern” about the situation in Russia.
“The escalation of the situation in Russia and Ukraine will have a negative impact on international security and peace, as well as on food and energy supplies,” Qatar’s foreign ministry said in response to news of the insurgency.
Any significant loss of Russian energy would force China and India to compete with Western nations for supplies from other producers. If political chaos restricts exports of other commodities such as grain or fertilizers, it could also cause supply and demand to become imbalanced. And that could drive up prices for everyone.
Richard Bronze, head of geopolitics and co-founder of Energy Aspects, said markets now need to figure out to what extent prices should rise to reflect greater risk to Russia’s supply – a view shared by other analysts.
“This apparent coup attempt only brings with it uncertainty, which could translate into higher prices,” said Matt Smith, Kpler’s senior oil analyst for the Americas. “Such turmoil and uncertainty as we have seen over the past few days could support prices given the possibility – and fear of such – of supply disruptions that were not a consideration ahead of the weekend.”
World energy and food prices soared after Ukraine’s invasion last year, fueling inflation in Europe and the United States. It has since fallen from a decade high, but the battle for price control is not over and is now at a crucial stage.
“The last stage on the way to restoring price stability will be the most difficult,” the Bank for International Settlements – the bank of central banks – said in its annual report on Sunday.
There is a “significant risk that an inflationary psychology will prevail” leading to what economists call the wage-price spiral, it said.
“The global economy is at a critical juncture. “Strong challenges need to be addressed,” said General Manager Agustin Carstens at the BIS General Assembly in Basel.
Signs that global energy demand may weaken this year due to the economic slowdown have pushed US crude prices down nearly 14% year to date to just under $70 a barrel. (It peaked above $120 a year ago.) The international benchmark — Brent crude — has similarly declined.
But anything that threatens Russia’s ability to continue supplying global energy markets is viewed with concern by policymakers in the West and by the country’s biggest customers in Asia.
“If anything…disrupts these flows, then that would definitely be an upside risk for oil prices, especially as we are already heading into part of the year when global demand for oil is expected to significantly outstrip supply,” Bronze said.
Libya and Venezuela provide cautionary tales of how civil wars and domestic unrest can hurt energy exports. According to the US Energy Information Agency, Libya’s oil production fell from about 1.7 million barrels a day to a record low of just 365,000 in 2020. According to an analysis by the Council on Foreign Relations, Venezuelan production also hit a multi-low in the same year decades.
Russia is a much more important player. With nearly 10 million barrels of oil per day, it produces about 10% of global demand. And with exports of almost 8 million barrels a day, Russia is the second largest power in the OPEC+ alliance of leading energy producers by a wide margin after Saudi Arabia.
Western sanctions have had the desired effect of reducing Moscow’s cash inflow from the energy sector, but Russia’s oil exports – in volume terms – have rebounded to pre-Ukraine invasion levels as China and India suck up the barrels shunned by the G7 countries .
On Energy Aspects, Bronze was cautious about drawing parallels with Libya and Venezuela. A better analogy would be the immediate aftermath of the collapse of the Soviet Union. It took a long time for the Russian oil industry to recover from this.
“They had real investment problems and real stability problems in the oil sector, which had already been severely damaged in the last years of the Soviet Union,” he added.
Sonnenfeld told CNN that the risk that the uprising in Russia could lead to a weakening of the global economy has decreased over the past 18 months. The Ukraine war backfired as it forced Europe to switch to alternative sources, he added.
While it’s too early to say anything will happen or change, “this is far from over and therefore raises new questions about what might follow,” Bronze said.
— Sarah Diab and Sharon Braithwaite in London and Alexandra Peers and Ramishah Maruf in New York contributed to this article.
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