A new era of oil order: How prepared is the world?

The first oil crisis started in October 1973, when the Saudi Arabia-led OPEC proclaimed an oil embargo. The embargo was targeted at countries who were in support of Israel during the Yom Kippur War. By the end of the embargo, archival records show that the price of oil had risen nearly 300 percent.

The embargo resulted in oil crisis or what energy experts refer to as “oil shock” with many short- and long-term effects on global politics and world economy. The second “oil shock” was in 1979. As expected, market forces raised the price of crude oil for almost a year. This was caused by a drop in oil production in the wake of the Iranian Revolution. In 1980, the Iran-Iraq War led to drop in both Iraq and Iran oil production, triggering global economic recessions.

Russia has invaded Ukraine since February 24, 2022. What started with movement of military hardware from Russia to Ukraine has turned to a full-scale war because diplomacy and negotiations failed woefully.

Russia invaded Ukraine and regrettably, about 8 billion people globally are likely to be casualties of the war. There is disruption in the flow of wheat, oil and gas to various parts of the world.

But one thing is certain at a time when most economies are just struggling with COVID -19 induced inflation: The new oil order will leave deep scare on many developing countries around the world

The world is experiencing collateral damage occasioned by the conflict between Russia and Ukraine as well as the involvement of NATO allies. The damage is gradually spreading like tsunami across the globe with implications on energy security, energy transition plans and future supply stability.

Drawing inspiration from the poem of John Pepper Clark, “The Casualties”, the voice of war is disastrous, deadly starving, retrogressing and sorrowful. There is humanitarian crisis in Ukraine and Eastern Europe. As Russia’s assault on Ukraine continues, so does the West’s campaign led by the USA continues with pressure applied on Moscow economically.

As the war began, energy experts’ eyes were on oil and gas. Russia needs funds from the sale of oil and gas to fund its military. The USA has blocked Russian oil imports, Liquified Natural Gas, and coal over Ukraine invasion.

Russia has equally retaliated by banning or placing restrictions on some commodities to certain countries. The European Union has equally proposed slashing Russian energy imports to Europe.

Western oil companies are leaving Russia after decades of business relationships in Moscow. It is the Ukraine war that is unleashing the worst possible confusion in energy markets across the world.

Africa in particular is very vulnerable to the Russia – Ukraine War because most African countries do not produce oil and gas, if they do, are net importers. For most African countries, the rise in cost of oil in the international market has resulted into an increase in the price of petroleum products as well as increase in transport fares.

In view of contemporary events within the international environment, policy makers, captains of industry, and consumers in oil dependent economies particularly, need to go back to the drawing board to realign their budgets and other economic recovery plans to a new oil order, and reappraise their strategies and economic roadmaps to secure energy supply.

It is unfortunate that no one can predict accurately how Russia’s siege of Ukraine will end. Or, how the key issue of Moscow’s opposition to NATO’s expansion eastward would be resolved.

But one thing is certain at a time when most economies are just struggling with COVID -19 induced inflation: The new oil order will leave deep scare on many developing countries around the world.

The weaponization of energy as a retaliatory measure for import and export of oil is likely to be considered offensive by most world leaders in managing international relations. Let’s not forget that as long as nations interact and national interest is the key factor in international relations, there will be geopolitical tension.

Read also: Global oil price surges on rising Russian sanctions – IEF

As things are today, if major oil producers and exporters cannot be assured of their markets, they will have no incentive to further invest in maintaining or expanding their production capacity.

In the case of Nigeria, we have been informed by the highest level of government that insecurity and waning investment in the oil and gas sector have been responsible for low production of crude oil.

With the push in Nigeria’s OPEC production quota at 1.8 million barrels/day, the country is under-performing. This is at a time when more dollars for crude oil would have translated to an increase in the nation’s foreign reserve. It appears that the country may miss the opportunity presented by the new era of oil order because of rising debt and outrageous fuel subsidy.

Difficultly in accessing foreign exchange and the ongoing war between Russia and Ukraine have been reported to be responsible for the rise in the cost of diesel and aviation fuel. The nation with four disabled refineries have to rely heavily on imported petroleum products on a fuel subsidy agenda. The nation with abundant crude oil and gas cannot refine the former as fuel scarcity worsens in some of the country’s major cities.

Developing nations do not have to be dragged into the Russia-Ukraine War. Neither does it make any difference if they are dragged into it. There are speculations that the price of crude oil is heading up north towards $200 per barrel.

Nigeria has started paying a steep price with import costs of oil soaring way beyond its pain point. Though unconfirmed, the author read that the unofficial price of diesel is about N650 per litre at depot.

But it is the author’s impression that heightened uncertainty and sharp volatility in the prices of oil and gas are making the jobs of governments and central banks more challenging globally. Therein lies the challenge for the world: how to drastically reduce inflation, or stagflation as the case may be.

If the Russia-Ukraine war ends today, the oil embargo will reverberate throughout the world for many months or perhaps, years to come.

One can predict that the war-weary population of many countries first battered by COVID-19 Lockdowns and then hit by recession and inflation may be witnessing civil unrest, strife and worsening geopolitical threats to oil and gas supply.

Perhaps, it is time for policy makers globally to rethink their strategies for the oil and gas sector of their economies. While territorial wars is the concern of those involved in hostilities, a nation’s energy security is the government’s business.

I hope it is time for world leaders to intervene – not from a political standpoint but with a collective voice of reason on the world’s energy security and economic recovery. Thank you.