In light of Russia's threats and European sanctions, what is the future of oil prices in the international market?

More than a month after the crisis of the Russian war on Ukraine, the international oil markets are still witnessing a state of instability. .

In light of Russia's threat to accept payment for its oil exports in rubles, and European and American sanctions that are crippling Russia's financial capabilities, one of the most important oil pipelines, the Caspian Sea, which carries oil from Kazakhstan and Russia to Europe, has been disrupted.

This failure led to a rise in oil prices to above $120 a barrel on Thursday, March 24, and there are expectations of experts that if the Caspian oil pipeline continues to fail, oil prices will jump to $150 a barrel.

It is estimated that this line transports about 67 million tons of oil annually, but the declared reasons for its failure are still due to factors related to the instability of the weather, but if it turns out later that the disruption of the oil supply line was deliberate, and it comes within the framework of managing the conflict between Russia on the one hand. And Europe and America, on the other hand, there will be other conditions in the oil market, which may lead to a dangerous escalation of prices, which some see in the range of $300 a barrel.

Can Russian oil be replaced?

Mostly short-term estimates indicate that it is difficult to dispense with Russia’s export share of oil and natural gas, which is estimated at 5 million barrels per day, especially with the continuation of the winter season, and Europe’s dependence - specifically - on Russian gas, whether for domestic consumption , or to supply industry and other economic sectors.

But in light of the existing conflict, both sides are trying to achieve their goals, and while the economic cost is considered, it is not the only one that imposes itself on the course of things;

There is a situation that can be described as a bone-breaking war. America and Europe may - even in the short term - refrain from escalation with Russia, to benefit from Russian oil and gas for the largest possible period, and then go to alternatives, albeit at greater costs in the short term, for considerations transportation cost.

The quantities related to Russia’s share in the oil market can be compensated by both Saudi Arabia and the UAE, but they have a political agenda with the Badin administration, and it seems that they are keen to settle that agenda in light of these conditions, as the two countries - in other circumstances - compensated the market for the lack of quantities. And they contributed to reducing prices significantly, and Saudi Arabia was declaring that oil was an economic commodity that should not be employed politically, and that oil prices should reflect the interests of both parties, producers and consumers.

But Putin’s decision to supply the dues of Russian oil exports to Europe in rubles and not in euros, and giving him an opportunity not exceeding a week to implement this decision, may accelerate Europe and America’s approach to activating other alternatives, including going to Saudi Arabia and the UAE to increase the quantities exported from them to the international market, especially to Europe, to save the situation.

In the medium and long term, America and Europe will work on the flow of oil exports from other places, such as Venezuela, Iran, and others, after the lifting of sanctions on them, and provide them with investments that guarantee an increase in their production and quantities exported abroad.

America and Europe may also aim to calm the political and military situation in the Arab region in both Libya and Iraq, and prepare the conditions to increase production and export quantities, but all of that will take some time and inject investments.

So, compensating Russia's share in the oil market - despite its importance - is possible, but it has a cost, and Putin's decision to reconsider oil pricing can be described as a double-edged sword, as it may enable Russia to restore the value of its local currency, and win an important round in the conflict with America. and the West, and may lead to further economic collapse, which could undermine Putin's presence in power.

Russia's losses would be great, if Europe and America dispensed with Russian oil entirely. Russian oil revenues represent more than 50% of public budget revenues, about 16% of the value of GDP, and about 70% of Russia's merchandise exports.

Will America and Europe allow oil prices to explode?

Estimates that expect the price of oil to go to $300 a barrel are apparently based on the continuation and escalation of the conflict, but will America and Europe allow prices to explode in the oil market?

The answer to this question is clear, that achieving the scenario of oil prices reaching $300 per barrel is a catastrophic scenario that will confuse the economies of America and Europe, and even the entire global economy, and will have catastrophic consequences, such as the expansion of poverty and unemployment.

Consequently, America and Europe may accept some Russian conditions to pass the remainder of the winter season, as well as until alternatives to Russian oil are arranged, but it is out of the question to allow conflict management, so that the price of oil reaches $300 a barrel, because of its catastrophic effects on the global economy. in general, and on Europe and America in particular.

Arab cooperation is necessary

On the other hand, the Arabs own an oil wealth that represents 25% of global exports, as well as possessing huge stocks of proven reserves of oil and gas. However, the global economic crisis resulting from the Russian war on Ukraine has not prompted any manifestation of Arab solidarity so far. Even a meeting or conference to arrange how to face the negative repercussions of this crisis.

Undoubtedly, the Arab oil countries (the six Gulf states + Iraq, Libya and Algeria) will benefit from the continuation of this crisis by increasing their revenues from oil exports, but this is only one of the positive aspects.

As it will pay a part of those revenues due to the high rates of global inflation, because the Arab oil countries import a large part of their needs from abroad.

As for the other dark side in the Arab region, it is the Arab oil-importing countries, where their economic problems are exacerbated by two aspects: the first is the high costs of the energy import bill, as well as the high costs of the rest of commodity imports.

In addition, some countries that depend on tourism revenues will be greatly affected, as many tourists around the world review their tourism conditions in light of the global crisis, and cancel their trips, due to the nature of the new economic conditions.

The least form of Arab cooperation required now is for the oil-producing countries to provide quotas of oil and gas at low prices to the oil-importing Arab countries, to alleviate their plight, which will affect large segments of citizens within these countries, forcing them to fall under the cycle of poverty and unemployment.