February 24th, 2022 marked a dark day for the world. People went to sleep, only to wake up to the news of Russia fighting Ukraine. Ukraine was initially part of the USSR until its disbandment in 1991. Ukraine would eventually become an independent state separate from Russia. Turmoil continued over the past three decades.
While that conflict wasn’t unexpected, most experts didn’t anticipate it would have the long-term knock-on effects that the world’s experiencing today. The Ukrainian invasion, for instance, skyrocketed oil prices worldwide as oil distribution and production were impacted.
Naturally, the conflict didn’t only impact oil production and distribution. It also resulted in supply chain disruptions, causing significant problems. Then, there was the wheat problem. Ukraine and Russia have historically been considered the bread baskets of Europe. The former exports over 45 million tonnes of wheat annually. Meanwhile, Russia is the single largest wheat exporter in the world.
Sanctions against Russia also resulted in oil prices rising to their highest level since 2014. Likewise, Russia’s position as the world’s leading gas exporter is also well-known. The sanctions also caused gas prices to skyrocket to the highest price since 2008, resulting in increased pressure on consumers.
Here’s how the Ukraine incident is reshaping the global oil landscape.
Sanctions and oil bans against Russia haven’t played out how the USA anticipated. While the current US ban on Russian oil increased their gas prices, Russia has successfully managed to find other markets to offset losses from US and European territories. Asian nations, like India and China, have been purchasing Russian oil in greater quantities. As a result, Russian exports were already back to pre-invasion levels in April, and they’ve increased since then.
Sanctions from the US and European nations have put Russia in a tricky situation. The country can’t use pipelines to export oil and gas to its usual European customers. As a result, Russia is forced to supply oil through ship-to-ship transfers when trading with Asian customers. Ship-to-ship transfers are expensive. In addition, they also increase the risk of spillage.
While European countries aren’t purchasing oil from Russia, they still need oil from other suppliers. As a result, they have started exploring alternatives. This move has created a unique opportunity for West African nations like Nigeria to capitalize. Demand for Nigerian crude oil has peaked because Nigeria has nearly 37 billion oil reserves.
It’s no secret that rising oil and gas costs are creating worldwide unrest. Inflation has hit a 40-year peak in the United States, and other nations aren’t far behind. China, the world’s largest oil importer, won’t achieve its economic objectives in 2022 because of the surging oil prices.
Many experts and analysts believe the Ukrainian conflict could catalyze a major recession.
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