Vostochny impact: oil price may exceed $150

Oil production, tied to transportation through the Strait of Hormuz, may completely stop in the coming month. Vladimir Putin warned about this on March 9. Disruptions in energy supplies due to the war in the Middle East are hitting the entire system of international economic relations: oil prices have increased by over 30% in recent weeks. If the conflict continues, its value may exceed the level of $150 per barrel, experts interviewed by Izvestia believe. On March 9, the price of Brent has already passed over $110 per barrel. The region's leading refineries are shutting down, export bans are being imposed, and Western countries are discussing possible measures to reduce prices. In times of crisis, Russia will continue to supply energy resources to reliable partners, and Moscow is ready to cooperate with Europe.

Putin announced an increase in Russian oil and gas supplies to his partners

On March 9, Vladimir Putin convened a meeting on the situation on the global oil and gas market. Last year, about a third of the world's offshore oil exports passed through the Strait of Hormuz, which is about 14 million barrels per day. Of these, about 80% were sent to the countries of the Asia-Pacific region. According to the president, this route is now effectively closed. In the last week alone, oil prices have increased by more than 30%. A similar situation is developing in the global gas market, he noted.

Logistical problems have a very negative impact on global production chains, and the entire system of international economic relations is being affected, the head of the Russian Federation added.

"Because the disruption of supplies is followed by other problems of a purely economic nature, and inflation is rising, and not only oil and gas production, but also the production of manufactured goods is suffering," Vladimir Putin said.

A complete switchover of Middle Eastern oil supplies without using the Strait of Hormuz is now unrealistic. Oil production tied to transportation through this artery, according to the President of the Russian Federation, may completely stop in the next month.

According to Vladimir Putin, a change in the balance of supply and demand of hydrocarbons will lead to a new stable price reality. Therefore, it is important for Russian energy companies to use the current situation, including in order to direct additional export revenue to reduce their debt burden and debt owed to domestic banks.

Meanwhile, Russia will continue to supply oil and gas to those countries that are considered reliable counterparties.

"I mean not only our partners in the Asia-Pacific region, but also in Eastern European countries such as Slovakia and Hungary," he said.

But Moscow is ready to cooperate with other European countries if they are ready for it themselves.

— If European companies, European buyers suddenly decide to reorient themselves and provide us with long-term, sustainable collaboration, devoid of political conjuncture, <... "Please, we have never refused, we are ready to work with the Europeans," the president clarified.

Which could lead to a further sharp rise in oil prices.

If the conflict in the Middle East, provoked by the US and Israeli strikes on Iran, continues, then in the coming weeks the price of oil may exceed the level of $ 150 per barrel. Dmitry Gusev, Deputy Chairman of the Supervisory Board of the Reliable Partner Association, told Izvestia about this. According to him, the rapid rise in prices will continue if Iran does not allow ships to pass through the Strait of Hormuz, as well as in the event of further destruction of the Iranian oil infrastructure. An attempt by the United States and Israel to conduct a ground operation on Iranian territory may be a factor in an additional escalation of the conflict.

"With the implementation of these factors, it is possible not only to increase the price of oil above the level of $ 150 per barrel in the coming weeks, but even to reach the level of $ 200 at the moment," the expert said.

Earlier, analysts at the Wall Street Journal and Yahoo Finance admitted that the price of oil could rise to $200 and above in the event of a long-term lockdown of the Strait of Hormuz.

The joint strikes by the United States and Israel began on the morning of February 28 and included massive attacks by aircraft and drones on hundreds of targets in Iran, primarily in Tehran and in the west of the country. Iran responded with large-scale missile strikes that affected not only Israel, but also a number of Persian Gulf states where American military facilities are located. The Iranian command announced attacks on 14 US bases in the Middle East. It was reported that explosions and the operation of air defense systems were heard in Bahrain, Qatar, Jordan, Iraq, Saudi Arabia and the United Arab Emirates.

On Saturday, March 7, the Israeli Air Force attacked oil infrastructure facilities in the Tehran area, The Times of Israel reported, citing officials. The Israeli military command admitted that it had indeed attacked Iran, but did not specify what targets they were hitting. The media reported that this was the first time during the operation when Israel attacked facilities related to the Iranian oil industry.

As this conflict escalates, oil prices continue to rise. Before the US and Israeli attacks on Iran, in early February, the price of black gold was below $70, according to ICE trading data. On March 4, May Brent futures were trading at around $80 per barrel. On March 9, the price of Brent rose above the level of $ 110. At the moment, the quotes reached $118.9.

— If the military conflict continues and the Strait of Hormuz is closed for three to four weeks, then an increase in prices to $150 per barrel is inevitable. Trump said that oil prices will immediately stabilize after the conflict ends — one could agree with this, but what is considered its end? — Valery Andrianov, an associate professor at the Financial University under the Government of the Russian Federation, told Izvestia.

He still sees no way to end this operation relatively quickly. According to the expert, Iran is unlikely to be able to physically block the Strait of Hormuz, but it is enough for it to keep a tanker fleet in the Gulf at gunpoint, threatening attacks on any ships that venture across the waters, even without officially declaring it. To create such a threat in the long term, Tehran has quite enough forces — for attacks on tankers passing near the coast of the republic, missile systems are not needed, drones are enough, which the United States and its allies will not be able to effectively deal with, the analyst is sure.

The oil infrastructure was at the epicenter of the attacks

A number of oil refineries and enterprises that produce liquefied natural gas (LNG) in the Middle East have temporarily suspended operations, Reuters reports. For example, Saudi Aramco, the national oil company of Saudi Arabia, suspended the refinery in Ras Tanura after the drone attack. Qatar Energy has halted LNG production after drones hit a water tank at a power plant, as well as another energy facility in Ras Laffan, Bloomberg reported.

According to Saudi economist Ali al-Hazmi, the Gulf states find themselves in an ambivalent situation. On the one hand, every dollar of increase in the price of a barrel adds billions. For Saudi Arabia, this could accelerate the implementation of the Vision 2030 economic diversification program.

— However, for us, manufacturers, the short-term benefit from prices is offset by the risk of long-term damage to infrastructure, loss of markets and forced volume reduction. Strikes on oil facilities, as well as problems at facilities in Bahrain, have already led to infrastructure damage and force majeure," the expert told Izvestia.

On March 9, the media reported that the Saudi oil giant Saudi Aramco began reducing production at two oil fields due to the shutdown of shipping in the Strait of Hormuz. The company has sent some of the oil for shipment to the Yanbu port on the Red Sea coast, but the capacity of the pipeline passing through the country is not enough to redirect all volumes.

— The expectation of a shortage is growing and soon it will turn into a direct shortage of oil on the market. In such conditions, the price can reach almost any level. And $150 for the acute deficit phase is a modest estimate. In 2008, oil prices rose to over $120 per barrel. Adjusted for inflation, that would be more than $180 per barrel today. But even such a mark cannot be considered as a limit in this situation," said Alexander Frolov, Deputy Director General of the Institute of National Energy, editor—in-chief of the InfoTEK portal.

A sharp reduction in prices cannot be ruled out if the conflict is put on hold in the coming days, he added.

Further strikes on fields and oil pipelines may push the price further to the level of $150 per barrel, agrees Igor Yushkov, an expert at the Financial University and the National Energy Security Fund. However, oil probably won't be able to stay at this level for long, since the more expensive it is, the lower the consumption. Few people can afford ultra-expensive resources, the market will be balanced by a decrease in consumption, the analyst believes.

Can the policies of the G7 countries restrain price growth

Against the background of the escalation of the conflict, consumer countries of raw materials began to discuss possible measures to curb price increases. The G7 countries (the G7 is an international club uniting seven economically highly developed countries: Great Britain, Germany, Italy, Canada, the USA, France and Japan) decided to discuss the possibility of releasing oil from strategic reserves to the market in order to bring down sharply rising prices, the media reported. We can talk about 300-400 million barrels, about 25-30% of the total reserves of 1.2 billion barrels.

The Serbian Cabinet of Ministers imposed a ban on the export of oil and petroleum products until March 19 with the possibility of extending this measure, the Ministry of Energy of the republic reported. The purpose of the ban is to protect the domestic market from shortages and price spikes due to global disruptions on global exchanges.

In the context of geopolitical instability, global importers and the most developed consumer countries may face a significant increase in energy costs, which will affect their domestic economic situation, Dmitry Gusev noted.

Fuel prices at American gas stations have increased by 17% since the beginning of the US and Israeli military operation against Iran, CNN reported, citing data from the non-profit American Automobile Association.

— The use of G7 countries' strategic reserves may temporarily curb growth, but it is not able to compensate for real supply losses from the Persian Gulf, where logistics are disrupted and storage facilities are overflowing. The destruction of Iran's oil infrastructure is already working to boost oil prices, but Tehran has additional levers of pressure, including attacks on American bases, refineries supplying the US military, and further blockade of the strait," said Alexander Schneiderman, head of Alfa-Forex's customer support and sales department.

The situation on the global energy market as a whole is still extremely difficult to predict — this applies today not only to the oil industry, Dmitry Gusev noted.

However, "black gold" is not the only raw material whose prices are rising. The cost of gas in Europe is also showing significant growth: "blue fuel" in Europe has risen in price by 30% amid the shutdown of the world's largest LNG plant in Qatar.

Europe is in a vulnerable position due to the depletion of its own reserves after the winter, Bloomberg writes, and will be forced to compete for gas with Asian buyers. Currently, one megawatt-hour at the TTF gas hub is trading around €62, which is approximately equivalent to €650 per thousand cubic meters.

How can this affect Russia?

If we talk about Russian oil, then, on the one hand, its cost in the ports of delivery will undoubtedly increase, Valery Andrianov noted. As Izvestia wrote, the price of Urals oil exceeded the restrictive "ceiling" announced by Western countries.

However, against the background of the Middle East conflict, oil tanker freight rates have increased significantly, and the risk premium is fully included in them — previously, such a premium was mainly used by tankers of the gray fleet, which received additional payment for the presence of sanctions risks, Valery Andrianov noted.

— Now the owners of the tanker fleet can earn very well in the "white" zone. This means that in order to maintain the volume of shipments from the ports of the Russian Federation, the conditions for shipowners must also be extremely favorable. Simply put, it is possible that the main risk premium embedded in skyrocketing quotes will go not to Russian oil companies and the budget, but to a chain of intermediaries," the expert said.

The high oil price also creates contradictory dynamics for the dollar-ruble exchange rate: on the one hand, the growth of export earnings supports the national currency, on the other, the strengthening of the dollar on the world market and domestic demand for the currency limit the strengthening of the ruble, said Alexander Baryshnikov, managing director of the Mining Management Company Record Capital.

In the coming month, it is likely that the dollar will remain in the range of 78-80 rubles, since the positive from oil will be offset by global currency volatility — the real inflow of money from oil sales will arrive with a delay of two months, so the actual impact on the budget and the exchange rate will manifest itself by May, but for now everyone is living with expectations and the news background, he added.

Andrei Loboda, a member of RASO and an expert in the field of financial communications, concluded: if we talk about the domestic fuel market, it is designed in such a way that gasoline becomes more expensive both when oil rises and when it falls, and logistical costs and inflationary expectations of businesses are constantly shifted to the end user.