Reed Blakemore is deputy director of the Atlantic Council's Global Energy Centre
April 08, 2022
Nearly six weeks into the Ukraine crisis, oil prices have remained at near-decade highs. Now, with the prospect of additional sanctioning of Russian oil and gas production, an already-uncertain forecast for oil markets has only grown more complicated.
The crisis in Ukraine is the latest development in a two-year period of demand and supply-side shocks throughout the oil market. The Covid-19 pandemic and the corresponding price collapse in April 2020 forced companies producing hydrocarbons in the US from shale rock sources to be more disciplined with their capital, exacerbating long-term underinvestment in oil and gas production.
Add to that the beguiling effects of Covid-19 on recovering oil demand – exemplified by yet another possible demand disruption from renewed lockdowns in China – and oil market fundamentals have been, at best, a moving target, if not entirely uncertain.
The war in Ukraine further complicated that picture. An embargo of Russian oil by the US and the UK in response to Russia’s actions has had a limited impact on the market, given the relatively small role either country plays in Russia’s oil exports. However, unprecedented banking sanctions by both the US and EU have introduced enough uncertainty for prospective purchasers of Russian oil to “self-sanction” their trade with Russia.
Some of these barrels are already beginning to end up in China and India, and will likely continue to do so. But the total Russian production without a destination is still uncertain, with estimates ranging from 1 to 3 million barrels per day stranded. Now, with calls for sanctions against Russia’s energy industry growing in fervour, the possibility of a broader embargo, tariffs or curtailments as a result of direct sanctions against Russian state-owned companies has further clouded the future of Russian barrels on the open market.
Managing the growing risks in a tight market of supply disruptions on energy prices, inflation and economic growth has preoccupied policymakers and industry leaders. But there are few useful tools on the table.
In line with historical commitments to not weigh into geopolitics, Opec+, a grouping that includes the Organisation for Petroleum Exporting Countries and other major oil-producing nations, has largely stuck to stabilising the market’s demand-side gyrations from Covid-19 over the past two years through steady re-introductions of oil supplies as demand recovers. In order to maintain group cohesion, and despite appeals from the US, some individual members of the group have been largely unwilling to dip into their spare capacity.
US shale production, meanwhile, will take time to add barrels back to the market following significant production declines as a result of Covid-19. Despite steadily rising oil prices over the past nine months, pressure from investors for fiscal discipline with an eye to shareholder returns limited capital allocations necessary to quickly ramp up production. Now, even with prices surging well beyond break-even prices for most fields, constraints on available labour, drilling equipment and fracking sand supplies will take time to build back into the sector.
President Joe Biden’s administration has made unprecedented releases from the US Strategic Petroleum Reserve to alleviate high energy prices. But the efficacy of even regular releases is likely to be limited, if not harmful over the medium term. Any optimism that Iranian barrels might come back onto the market through successful negotiations for a new nuclear deal with Tehran has quickly faded.
The US has released some of its Strategic Petroleum Reserve, but it is not expected to relieve prices by much. EPA
Market conditions will continue to be shaped by a backdrop of structural supply uncertainty that emerged long before Russia’s invasion
Such challenges will hang over the oil market for some time, and there is unlikely to be any price relief in the short term. With few sources of new supply, it is possible that broad sanctioning of Russian oil quickly sends prices over their previous crisis highs to above $150 for a prolonged period. At the same time, with inflation also increasing prices for electric vehicles, and consumers desperate to travel as pandemic lockdowns ease in the West, it is also uncertain whether high energy prices will drive the type demand destruction one would expect in similar oil price environments absent an economic recession. And yet, such a recession appears to be an increasingly real possibility. This week, Deutsche Bank predicted that the US could face a recession late next year.
Eventual production from the US, as shale producers slowly respond to a favourable price environment, will alleviate some supply-side tightness over the next 12 to 18 months. However, the medium-term picture will be characterised by the next phase of the crisis in Ukraine, and whether – and how – possible sanctions against Russian oil production unfold. The scale of such a programme would affect how much Russian oil will be available on the market. And the effect will be further complicated by the possible incentives to purchase Russian barrels at an artificial discount or on the black market, should those barrels not be replaced and high prices persist. Even so, further removal of Russian oil production from the open market could presage a prolonged and severe supply-side crisis on the horizon.
Over the long term, a key question will be under what circumstances Russian barrels return to the oil market in a presumed resolution to the war in Ukraine. Even under sanctions, Russia is not likely to completely end production; halting operations at any oil well risks damaging it permanently. This means a significant amount of oil might remain in storage and suddenly come to the market should sanctions immediately lift once the war concludes.
Alternatively, given consistent demand for heavier Russian crudes, Moscow might find ample opportunities to circumvent sanctions, possibly resulting in a longer-term shift in Russian oil flows from the West to the East where they are more willingly – or easily – purchased outside the reach of western sanctions. Here, continued imports of Russian crude by China and India will be a trend to watch as they balance the advantages of discounted Russian oil shipments with existing import partnerships with Middle East producers, and the risks of exposure to possible secondary sanctions.
Yet perhaps more crucially, it’s unclear how oil and gas companies’ “self-sanctioning” of Russia’s energy industry will unwind, with many of those companies offering significant technical expertise to Russia’s ageing and hard-to-develop oil resources.
Market conditions will continue to be shaped by a backdrop of structural supply uncertainty that emerged long before Russia’s invasion. Though western policymakers have sought to quickly bring more hydrocarbon supplies to market as a solution to the current crisis, it is unclear whether over the long term this will be outweighed by commitments to transition from fossil fuels in the name of both diversification and climate action, and whether policy and financial support for additional hydrocarbon production will wane as a result.
With that transition very much still a work in progress, the long-term picture for oil markets will likely continue to be tight supplies highly exposed to geopolitical disruptions, such as what we are seeing in Ukraine today.
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Jebel Akhdar is a two-hour drive from Muscat airport or a six-hour drive from Dubai. It’s impossible to visit by car unless you have a 4x4. Phone ahead to the hotel to arrange a transfer.
If you’re driving, make sure your insurance covers Oman.
By air: Budget airlines Air Arabia, Flydubai and SalamAir offer direct routes to Muscat from the UAE.
Tourists from the Emirates (UAE nationals not included) must apply for an Omani visa online before arrival at evisa.rop.gov.om. The process typically takes several days.
Flash floods are probable due to the terrain and a lack of drainage. Always check the weather before venturing into any canyons or other remote areas and identify a plan of escape that includes high ground, shelter and parking where your car won’t be overtaken by sudden downpours.
Key facilities
Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
Premier League-standard football pitch
400m Olympic running track
NBA-spec basketball court with auditorium
600-seat auditorium
Spaces for historical and cultural exploration
An elevated football field that doubles as a helipad
Specialist robotics and science laboratories
AR and VR-enabled learning centres
Disruption Lab and Research Centre for developing entrepreneurial skills
Emirates (www.emirates.com) flies directly to Hanoi, Vietnam, with fares starting from around Dh2,725 return, while Etihad (www.etihad.com) fares cost about Dh2,213 return with a stop. Chuong is 25 kilometres south of Hanoi.
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area. Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife. Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple. The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items. According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”. He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale. Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
UAE currency: the story behind the money in your pockets
Estimates of the number of deaths caused by the famine range from 400,000 to 1 million, according to a document prepared for the UK House of Lords in 2024. It has been claimed that the policies of the Ethiopian government, which took control after deposing Emperor Haile Selassie in a military-led revolution in 1974, contributed to the scale of the famine. Dr Miriam Bradley, senior lecturer in humanitarian studies at the University of Manchester, has argued that, by the early 1980s, “several government policies combined to cause, rather than prevent, a famine which lasted from 1983 to 1985. Mengistu’s government imposed Stalinist-model agricultural policies involving forced collectivisation and villagisation [relocation of communities into planned villages]. The West became aware of the catastrophe through a series of BBC News reports by journalist Michael Buerk in October 1984 describing a “biblical famine” and containing graphic images of thousands of people, including children, facing starvation.
Band Aid
Bob Geldof, singer with the Irish rock group The Boomtown Rats, formed Band Aid in response to the horrific images shown in the news broadcasts. With Midge Ure of the band Ultravox, he wrote the hit charity single Do They Know it’s Christmas in December 1984, featuring a string of high-profile musicians. Following the single’s success, the idea to stage a rock concert evolved. Live Aid was a series of simultaneous concerts that took place at Wembley Stadium in London, John F Kennedy Stadium in Philadelphia, the US, and at various other venues across the world. The combined event was broadcast to an estimated worldwide audience of 1.5 billion.
