After visiting the negative territory for a little less than two years, the escalation in the war in Ukraine devoured the cards and led to a sharp rise in oil prices. As of this writing, the price of a Brent barrel has risen to $ 130 – a record since 2008. The war in Eastern Europe disrupts Russia’s oil supply, which accounts for 11% of world production, and raises the question of whether Russian oil losses can be covered.
Today about 70% of Russian oil is looking for buyers without success. The reasons for the increase in prices range from the report that the United States is considering banning Russian oil from entering its territory; through the sanctions imposed on Russian shipping companies that have reduced the volume of transportation;
In order to deal with the lack of Russian oil from the market in the West, the US is already considering together with its allies the supply of 60 million barrels of oil from the emergency reservoirs, and additional sanctions threaten Russia’s third-party trade partners. From tankers refusing to unload in London, the price of Russian oil is currently 18% lower than the market price. “Currently there is no other way to ensure European energy supply,” Schultz said. Germany imports close to half of its natural gas from Russia, as well as a significant chunk of the coal that still operates coal-fired power plants.
The new world order of the energy market will have far-reaching consequences. A review by Goldman Sachs economists, obtained by Globes, states that “if Western countries bought less Russian oil, China and India could in principle buy more Russian oil and accordingly less Saudi oil and others, which could then flow to the West. But the ‘rearrangement’ is not perfect, no. Not only because of transportation costs and other technical matters, but also because China and India may be reluctant to increase their imports and parallel payments so sharply at a time when Russia is becoming a global outcast. , Which has the potential for further price increases.
“Reducing trade through sanctions and boycotts means that the rest of the world needs to produce a larger share than it needs. The potential change is quite small at the aggregate level, as Russia is responsible for less than 2% of world trade in goods and GDP. In contrast, in oil Russia supplies 11% of world consumption. “In natural gas, Russia supplies 17% of global consumption and up to 40% of Western Europe’s consumption as of 2021,” Goldman Sachs wrote.
Russia’s size in the natural gas market also translates into prices. About a week ago, Europe paid about 660 million euros for Russian gas in one day – three times the price before the invasion. Today the price of natural gas in Europe soared to an all-time high of 345 euros per mega watt hour.
Will other manufacturers replace Russia?
Although the West did not impose widespread sanctions on the energy sector, sanctions on Russian shipping companies (which were subsidiaries of large banks close to the Kremlin) raised concerns about supply disruptions. According to Gil Befman, chief economist at Bank Leumi, “it is difficult to find shipping companies willing to send vessels to Russia due to the fighting in the area and after several ships in the area were damaged by the fighting, making it even more difficult to supply Russian oil to customers.” Reduced the supply of ships to transport oil by sea.In addition, the risk of sea transport increased and increased the insurance premium for maritime transport.These two factors led to an increase in the prices of maritime transport of oil.
“In our estimation, the supply of oil from strategic reservoirs may have only a short-term effect. If sanctions continue for a long time and lead to a continuous disruption of global energy supply, the impact of oil supply from emergency reservoirs will be marginal. To some extent about the lack of Russian oil in the market, “says Befman.
Putin is accelerating the world of renewable energies
Reluctantly Russian President Vladimir Putin may be the one to sign the acceleration of the development of the world of renewable energies while the West points out that it is necessary to disengage from energy dependence on Russia. “There is no doubt that the current crisis will further sharpen the need for the gradual disengagement from fossil energy and a faster transition to the use of renewable energy,” says Meitav Bar-David, energy analyst at Mizrahi Tefahot Bank. “This time not only from the environmental aspect, but because of the geopolitical tension it creates.”
And what about energy prices in Israel?
The effects of the war in Ukraine on the Israeli economy are considered small compared to the West, but it is difficult to say that developments in the world will completely miss the local economy. Although gas prices are not expected to change, since Israel’s gas reserves have been signed in long-term agreements at a low price in international terms. But the rise in the price of oil is expected to roll over to the price of fuel at stations.
Already in February, there was an increase of 33 agorot, which brought the price of a liter of fuel to a record high of 8 years – more than 7 shekels. This level was set at a price of $ 100 per barrel, and it is not clear what the price of oil will be when calculating the formula for the price of fuel (next update at the end of the month).
Beyond that, the price of coal, which weighs about 20% in the electricity tariff, rose more than 160% this week to more than $ 400 per ton. In addition, the rise in the price of oil is expected to burden transport and production costs worldwide, which is expected to be passed on indirectly to the local economy and judging by past cases, it is doubtful whether the world energy map will return to normal. “It is really not certain that prices will soon return to pre-war levels in Ukraine,” says Alex Jabzynski, chief economist at Meitav Dash Investment House. “Russia is likely to remain under some or all of the sanctions. No sanctions imposed on it since 2014 (occupation of the Crimean Peninsula) have been lifted. “The supply of goods from Ukraine is not expected to resume soon, certainly in the event that Russia conquers it.”
In terms of the development of renewable energies, here in Israel the Ministry of Environmental Protection estimates that it is possible to reach 40% renewable energy within 8 years, compared to the 30% target set by the government, without additional economic cost, thus achieving economic savings of about NIS 6 billion .
Sanctions can also reach inflation
As energy prices, maritime transport and goods continue to be high, the impact on inflation in the country will increase in 2022. “The connection over the years between the commodity price index in shekels and inflation in Israel is clear – a rise in commodity prices will lead to an increase in inflation,” Jabzinski explains.
Bank Hapoalim economists also write that “In April, annual inflation in Israel will exceed 4%, and will gradually decrease until the end of 2022. In a scenario where the war will end relatively quickly and oil prices (barrel barrels) and commodities have fallen, there will still be high price indices in the coming months. Later this year to about 3%. “