Here’s: i) English audio ii) Arabic video iii) my English blog points
Al Jazeera asked me, about the Russian Foreign minister’s declaration that oil prices could go to $300/barrel if the West sanctions its oil. [Note: this interview was a week ago; but still relevant.]
I said: Finally the Russian minister has said something true. However, I explained that USA sanctions – as the EU also wanted – initially (Note: at the time of this interview, President Biden had not yet banned USA imports of Russian oil) had included exemptions from the larger SWIFT sanctions on Russian bank transactions specifically allowing continued payments for Russian oil and gas exports. And, last week, Putin, for his part, specifically also said he would not cut off Russian oil and gas deliveries to the West. So, why do we suddenly have the beginnings of a crisis of undersupply of Russian oil to the “”‘Global Barrel’ (dot com)”” oil market? It turned out that global-oil market actors themselves – the western banks that finance purchases, the spot market traders who make daily deals and oil-tanker owners who have to send their tankers to Russian ports to pick up oil – have broadly and voluntarily backed off from buying Russian oil. There are various reasons – there is over-compliance to sanctions, being super careful not to inadvertently violate the complex sanctions, reduce risk of sudden supply disruption from the Russian side, and also the fact that no tanker will pick up oil in a war zone or nearby without appropriate insurance, etc. There are also reputational issues of being seen by civil society as engaging in war profiteering if an entity purchases what is now deeply discounted Russian crude. I also explained that the Strategic Petroleum Reserve (SPR) system of the OECD states, which should hold at minimum 90-days of the total imports of any OECD state’s oil imports, will soften the shortage of oil should the purchase of Russian oil be sanctioned by the USA and/or EU, or if Putin and Lavrov decide to cut off Russia’s oil supply to Europe.
However, this SPR system, I explained, was designed in the 1970s with something like an OPEC embargo – for political reasons during some relatively short Mideast War (or, also during some natural disaster, such as the Katrina hurricanes in the vicinity of New Orleans in the USA some years ago) or during a war such as the first or second Gulf War, where supplies were temporarily needed to soften a spike in oil prices. While the existence of these SPRs has been a potent force to avoid any repeat ever of the 1970’s initial OPEC (AOPEC) embargo, they obviously would slowly be depleted if the third-largest oil supplier, Russia, had most of its 10 million barrels per day of supply off the global market. There would be a chronic shortage of oil. There is no way of realistically knowing what the price of oil might be in this situation. $200 if not beyond imagination. We touched on other issues as well.
Frequent commentary is at both @twodtwod and my LinkedIn site. – Tom O’D.
The Global Barrel 