Public Comment
THE PUBLIC EYE:The New World Order: Oil
The February 24th Russian invasion of Ukraine has ushered in a dangerous new world order. In response to Vladimir Putin's intent to obliterate Ukraine, the US has formed a global coalition to isolate Russia. Crippling economic sanctions have been levied on Russia. This has impacted the price of oil.
Russia: Two weeks into the invasion, it's clear that Putin made two miscalculations: he underestimated Ukrainian resistance and the strength of the NATO coalition. Now Russia is suffering from severe sanctions: their participation in the global banking system has been curtailed; Internet connectivity has been throttled; assets of Russian oligarchs have been seized; and sales of fossil fuel have been restricted. In this article, I discuss the oil-related sanctions.
Russia has the 11th ranked economy in the world. (In 2021, $1.70 trillion GDP.) The US economy is number one ($22.99 trillion in 2021); by the way, California's economy is number five ($3.35 trillion in 2021). Compared to the United States, Russia's economy is unsophisticated. It is unusually dependent upon fossil fuel exports. ("Crude oil, petroleum products and natural gas comprise roughly 58% of total exports... Sales to Europe represent over 60% of total exports while Asia has an export share of roughly 30%. Russian exports to the United States, Africa and Latin America combined represent less than 5% of total shipments.")
While Russia is the third largest oil-producing country -- behind the United States and Saudi Arabia -- it is the number one oil exporter. According to the Washington Post (https://www.
European Union: The Washington Post noted: "In the year ending in October, Russia supplied about a quarter of all oil imported by the European Union." The countries most dependent on Russian oil are Slovakia, Poland and Finland. About 32 percent of German oil comes from Russia.
As the results of economic sanctions, some of these oil deliveries have ceased. Nonetheless, when the EU hit Russia with economic sanctions, it left open a portal in order to pay for oil. (https://www.reuters.com/
In leaving open this financial conduit, the EU is betting that the war in Ukraine will be short-lived and, therefore, they can withstand criticism for "financing Putin's war" and continue receiving Russian oil they depend on. At the moment, it appears the war will drag on and reports of Russian atrocities will mount. As a result, there will be increased pressure on the EU to shut off Russian oil. (Or, Vladimir Putin may react to the impact of the other economic sanctions and retaliate by cutting off deliveries .) Writing in the Atlantic (https://www.theatlantic.com/
On March 9th, The European Union (https://www.nytimes.com/2022/
The big question is, "If the EU does not buy oil from Russia, where will it come from?"
World Oil Supply: The United States is the world's largest oil producer, but we use most of our production. We rank seventh in oil exports. The major exporters are: United Arab Emirates (UAE), Saudi Arabia, Russia, Kuwait, Iraq, Canada, USA, Nigeria, Mexico, and Norway.
About 20 percent of Germany's gas comes from Norway, via an undersea pipeline. This source is said to be running at capacity and is not capable of providing more in the near future. The implication is that, if Russia shuts off the oil spigot, the EU will need to be supplied by Arab states such as UAE, Saudi Arabia, Kuwait and Iraq. Early indications are that these countries will stick to the Organization of Petroleum exporting countries (OPEC) plan. [The members of OPEC are: Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.] This plan advocates conservative production increases -- because many of these nations do not want to offend Russia. (https://www.cnn.com/2022/03/
The United States has begun negotiations with Saudi Arabia. The Wall Street Journal (https://www.wsj.com/articles/
The United States has also begun negotiations with Venezuela (https://www.aljazeera.com/
The reality is that if Russia shuts off the oil spigot, the EU will be in a world of hurt. They will have to find other fossil-fuel sources, and they will be expensive. (OPEC, and many multinational oil companies, view the Ukraine War as an opportunity to make money.)
Inflation: The Biden Administration has banned Russian oil imports (about 3 percent of our oil use). This ban will increase the price of gasoline, a major component of rising inflation.
US Inflation has risen by 7.9 percent, a forty year high. (https://apnews.com/article/
Coming out of a prolonged pandemic, some inflation should be expected because the normal economic system was disrupted. In the case of energy, this inflation has been increased by turmoil in the world marketplace.
Republicans are seizing on inflation -- particularly gasoline price increases -- as an opportunity to bash President Biden. The reality is that rising fuel prices are primarily due to global marketplace conditions -- Biden Administration policies have played a negligible role. Writing in the Washington Post(https://www.
Summary: The current situation is both a problem and an opportunity. It's a problem because the war in Ukraine is a humanitarian disaster. It's a problem because the war exacerbates climate change. It's a problem because it's likely that the EU will lose access to Russian gas and this will cause economic and social problems. It's a problem because the price of gasoline is going to go up and up.
Nonetheless, the spike in international oil prices is an opportunity for all of us to accelerate our departure from reliance on fossil fuels. For example, to buy that electric vehicle we have been considering.
Bob Burnett is a Bay Area writer and activist. He can be reached at bburnett@sonic.net