Geopolitical tensions caused by Russia's invasion of Ukraine, which had an immediate impact on the global economy and markets, will also have long-lasting implications for commodities and energy policies, according to global energy consultancies.
As Russia steps up aggression in Ukraine, the US and its allies agreed Sunday to remove key Russian banks, institutions and individuals, including the removal of selected banks in Moscow from the SWIFT global payments messaging system.
In response, Russian President Vladimir Putin ordered deterrence forces, including nuclear arms, to be placed on high alert. Ukrainian and Russian delegations will hold high-level talks on the border between Ukraine and Belarus later Monday in the hope of de-escalating the aggression.
According to US bank, JP Morgan Chase, the clearest economic and market risk from the conflict is that it will induce an increase in energy prices and a period of stagflation.
'A scenario like this would resemble the aftermath of the Yom Kippur War in 1973, when the Organization of Arab Petroleum Exporting Countries cut off oil exports to the US. In that event, the S&P 500 fell by 40% and didn’t fully recover until 1980. Given that Russia produces 12% of the world’s oil and nearly 17% of natural gas, that risk may seem high,' JP Morgan said.
The US bank said the risk is higher for Europe than the US, given that 40% of Europe’s natural gas and 27% of its oil comes from Russia, 30% of which is transported through Ukrainian territory. The US, however, imports just 1%–3% of its oil and gas from Russia.
-War in Ukraine piles more pressure on European gas market
Consultancy Wood Mackenzie highlighted the dependence globally on Russia for commodities like gas, coal, oil, iron ore, aluminum, platinum group metals and zinc to copper, lead, petrochemicals and fertilizers, and also noted that many major international oil and gas companies, utilities and miners are invested in Russia.
WoodMac said the war in Ukraine is piling more pressure on Europe’s gas market, which was already experiencing its worst crisis on record.
'If the EU were to impose sanctions that stopped Russian gas flows today, it could muddle through this winter, but struggle to build gas inventories for next winter,' it said, warning that prices would climb, inflation would spiral and industries would need to shut down.
'The European energy crisis would, we believe, trigger a global recession. But Russia, too, would suffer if it halted gas flows. Consequently, we think business as usual is the most likely outcome, though the EU will inevitably be forced to question its dependency on Russian gas,' it said.
-OPEC+ likely to consider production rise in case of actual oil supply cut-off
Ruling out Russian curtailment of its oil exports in response to sanctions which would sharply reduce its revenue, WoodMac said it nonetheless would pose a risk for markets.
Russia’s removal from the SWIFT system may disrupt exports temporarily, however, Russia has alternative payment methods, WoodMac said.
'In the case of an actual oil supply cut-off, OPEC would be more likely to consider using spare capacity to help offset losses,' it said.
The OPEC+ group will meet on March 2 to discuss the latest market developments and decide how much oil to pump in April.
According to the International Energy Agency (IEA), the group's production capacity is currently around 900,000 barrels behind monthly output targets.
The spare capacity that member countries can make available in case of any supply disruption has been declining since 2020.
The OPEC+ group currently has 5.1 million barrels per day of spare capacity, but in an emergency, only 2.2 million barrels of physical crude oil from Saudi Arabia and the United Arab Emirates (UAE) would be made available.
By Sibel Morrow
Anadolu Agency
energy@aa.com.tr