Impact of the Russia Ukraine War on the Global Oil and Gas Industry.
The war between Russia and Ukraine brought many consequences to the global economies. Various sectors and businesses faced unprecedented financial challenges. However, the one sector that continues to suffer the most is the global oil and gas industry. Since Russia is the third-largest producer of oil in the world, it was obvious that its invasion of Ukraine would affect the global energy market. However, nobody could have predicted that the impact would be so severe.
The Russia-Ukraine war officially began in February 2022, and soon turned into a massive fuel and food crisis the world had ever witnessed. At the beginning of January 2022, the cost of crude oil was around $78 per barrel in the global oil markets. It later skyrocketed to $110 per barrel by the end of March 2022.
Global oil prices were already increasing during 2021 due to the imbalance in demand and supply. Back then, the daily oil demand was more than its supply by a difference of more than one million barrels. This surplus of demand had increased to two million barrels per day by the fourth quarter of 2021.
Experts predicted that this insufficiency would be covered by 2022. However, the war and the resulting unforeseeable developments in the industry made it extremely difficult.
How did the Russia-Ukraine War Cause Global Oil and Gas Prices to Rise?
Following the beginning of the Russia-Ukraine war, on March 8, 2022, President Biden announced that the US is banning imports of natural gas, coal, oil, and other petrochemicals from Russia.The UK government did the same and banned the imports of hydrocarbon products from Russia.
Multiple Western countries followed suit which increased the prices of oil and gas by a huge margin. Not only this, but the Russia-Ukraine war also led to the imposition of several sanctions by Western countries on Russia. This was done to regulate the prices at which oil and gas were being sold to other countries. Some of the major sanctions included:
- The European Union and the G7 enforced a price limit of 60$ per barrel which is subject to change in the future.
According to this sanction, non-EU countries that choose to follow the price policies will be insured by the EU, and G7 insurance and financing services catered to the transport of Russian crude oil. Needless to say, this has caused a considerable decline in imports from Russia.
- The European Union is also set to completely cease all imports of refined oil products by February 2023. The EU called them the “harshest package of sanctions the Union has ever implemented”.
- Further, all sea imports will be completely banned by the end of December 2022.
What are the Effects of the War and the Following Sanctions on Russia and the Global Oil and Gas Industry?
As the Western countries put sanctions on Russia and banned the import of oil, Russia resorted to selling its oil and gas, and other petroleum products at highly discounted prices to the countries willing to buy.Initially, people believed that these bans would have a crippling effect on the Russian economy, but their impact was tempered by the high oil and gas demand from Asian countries, primarily India.
While several western countries like the ones mentioned above have boycotted Russian imports, India has continued to buy oil from Russia. Since Russia decided to sell its oil and gas at a heavily discounted price, India was able to buy crude oil from the cheapest sources.
According to various reports, there has been a considerable increase in oil purchases by India since November 2022. According to oil analyst Matt Smith from Kpler, “it is likely a sign that loading have pivoted away from heading to EU 27 countries and are heading to India instead.”
Along with India, Sri Lanka and China are also trying to make the most of Russia’s discounted oil prices and fulfill their oil and natural gas storage demands.
So, that was all about the cause and effect of the Russia-Ukraine war on the global oil and gas industry. While the oil and gas prices went up during the first few months following the war, the demand from Asian countries seems to have created a balance now. Unless the West decides to put severe pressure on Asian oil buyers, experts believe that oil prices will not see another spike for a while.
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