What Will Happen To Oil And Gas
Russia is the second-largest exporter of crude oil after Saudi Arabia and is still the world’s top natural gas supplier. So sanctions and military conflict, in general, will undoubtedly undermine the stability of international markets. To understand the consequences, Bloomberg analysts considered three scenarios for the development of events – from best to worst.
Scenario One: Deliveries Will Continue
Prices will remain at current levels, and there will be no interruptions in supply, as well as a prolonged market decline. The newspaper writes that such an optimistic mood among experts appeared after US President Joe Biden announced new sanctions against Russia. There were no restrictions on the purchase and sale of Russian energy carriers. As a result, oil prices fell to $93 per barrel.
Scenario Two: Supply Chain Delays
According to the publication, some tankers refused to transport oil from Russia until sanctions were finally cleared. It is also unknown what will happen to the gas pipelines since the most important ones pass through Ukraine, which means they may suffer due to hostilities. Even minor supply disruptions can put even more pressure on energy prices.
If the price of gas rises to €180 per MWh and oil to $120, the inflation rate in the Eurozone is likely to be 4% by the end of 2022. This is in contrast to the 1.95% average from 1991 to 2022. And income will continue to decline. Ultimately, GDP will be at risk, and the European Central Bank will not be able to raise key interest rates, as planned, until 2023.
In the event of a crisis in the US, as analysts believe, inflation will rise to 9% in March and fall slightly to 6% by the end of the year. In December 2021, for comparison, the figure was 5.8%. And interest rates are likely to rise slowly in the second half of 2022.
Scenario Three: No More Gas
Suppose the United States and Europe put forward the most severe sanctions. In that case, they disconnect the country from the SWIFT system of international payments. Then, Russia can take retaliatory measures and cut off gas supplies to the EU. Then the loss of even 10% of the total risks reduced the GDP of the Eurozone by 0.7%. And if Putin cuts supplies by 40%, then by all 3%, or even more.
Because of this, the European central bank will not be able to raise interest rates shortly, and Europe itself is likely to face a recession. It will suffer, according to Bloomberg analysts, including the United States: if prices and inflation continue to rise, the state will have to tighten monetary policy in a weakened economy aggressively.
What Will Happen To Food
Disconnecting Russia from SWIFT means cutting it off from most of the global financial market. But Europe and the United States are in no hurry to take this step because uninvolved countries will suffer because of it – they buy from it, including Ukraine, energy resources and nickel, aluminum, potash fertilizers for agriculture, barley, sunflower oil, corn, and wheat.
In the future, may partially or wholly international deliveries of agricultural products due to tension in the Black Sea ports. As a result, goods will rise in price and threaten social stability, writes NYT. Even though prices have already increased due to the pandemic – wheat, for example, has risen in price from April 2020 to November 2021 by 80%.
“If farmers are unable to harvest their crops due to prolonged hostilities, and if ports and railways are destroyed, many will have a hard time. Countries in North Africa and the Middle East are highly dependent on wheat from Russia and Ukraine,” explains researcher David Laborde.
A political crisis risks undermining international trade as a whole, as some cargo ships have already stopped and airlines are canceling and banning flights with might and main. If the conflict continues, states may impose restrictions on agricultural trade with Russia. But the White House is still “aiming” at industrial and military production, as well as the elite writes NYT.