Within the last one year, sanctions have been placed on countries such as Russia, Venezuela and Iran and they have been rubbing oil markets off the wrong, causing bellyache in boardrooms as oil prices climb north of $80.
Analysts say this widespread use of sanctions can be destructive to global oil markets, posing risks to future oil supply security and potentially pushing oil prices to record highs.
The countries currently suffering sanctions could see their energy security plans threatened, affect economic projections and have negative impact on oil demand and prices.
Igor Sechin, CEO of Russian top oil producer Rosneft, estimated the US sanctions against Iran, Venezuela and Russia, either already in place or under consideration, could result in new oil prices records in the near future as they are targeting a third of combined global crude reserves.
“This is a sort of a negative global record, that has never happened previously,” Sechin said according to a report by Platts.
“The policy of sanctions and ultimatums in respect of hydrocarbons markets cannot help but establish a ‘sanctions premium’ to the price,” he said. “I don’t rule out that quite soon we’ll be able to talk about a sanctions commodity super-cycle and we’ll see new price records shortly.”
Oil prices have reached their highest since November 2014, with Brent crude breaching the $80/b level recently as supply risks related to Venezuela and Iran have buoyed the market.
Besides the companies involved, there are also implications for international oil companies as these sanctions limits their opportunities. Total says it may exit from the deal on Iranian South Pars oil and gas field in the face of US sanctions, unless it gets a waiver.
“It’s a huge global challenge,” he said. “Our role is to build bridges by new projects.”
Shell CEO Ben van Buerden said his company “simply cannot go into places with sanctions in place,” adding “it’s not as if we really need to go into countries with a lot of problems to keep ourselves going.”
Sanctions is also setting in increased high oil prices which on the face of it may look positive but may have unintended consequences. Higher oil prices could limit demand and economic growth leading to greater volatility.
Russia and France’s leaders, have criticized unilateral use of sanctions, calling for greater trust and cooperation globally. Putin said sanctions is unprecedented protectionism, saying that they can stall economic growth globally.
However, higher oil prices also have some benefits. In the case of Nigeria, the Federation Accounts Allocation Committee (FAAC) last week said that members resolved to transfer about N24.5 billion from the revenue for the month in the excess crude account (ECA), the first since the country’s economy went into recession two years ago.
While Nigeria is not currently at the receiving end of any sanctions so that presents an opportunity to utilise the funds judiciously. The wisest options is to put the excess funds into an investment vehicle to create value for the country after all the sanctions will not last forever.
ISAAC ANYAOGU
