Impact of Russian sanctions on global markets

March 8, 2022 - 18:40

TEHRAN- Moscow has issued a stern warning that a Western ban on Russian oil imports could more than double the price of the vital commodity to $300 a barrel and prompt the closure of the main Russian gas pipeline to Germany.

Oil prices have already peaked to record highs of $140 a barrel, prices not seen since the 2008 global financial crisis.

Critics argue Western governments will blame the price hikes on Russia to avoid losing voters while they take more tax from consumers and oil companies make record profits as tens of thousands if not millions of Europeans will drop below the poverty line.

Russian Deputy Prime Minister Alexander Novak has warned that oil prices could jump to more than $300 dollars a barrel if the United States and European Union impose sanctions on Russian oil exports.

In a video statement broadcast on state television, Novak said "It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the global market.. the surge in prices would be unpredictable. It would be $300 per barrel if not more."

He also says Russia is not dependent on the West and can “reroute” its supplies elsewhere.

Europe is already suffering from soaring energy prices that are expected to hit consumers the hardest. Gas prices in Europe hit record highs of almost $3,900 per 1,000 cubic meters while the price of Brent crude oil surpassed $130 per barrel for the first time in a decade.

Over the past week, U.S. gasoline prices soared by 11% to their highest levels since late July 2008. On Monday, American motorists at the gas pumps suffered a new all-time record of $5.288 a gallon in California. Experts have speculated that the price could rise further in the near future if the U.S. and Europe ban Russian gas imports.

This could effectively harm the Democrats in the mid-term elections as voters tend to put gasoline prices among other issues at the top of their agenda at the ballot boxes.

Speaking to journalists Novak has also warned that European officials are “once again seeking to put all the blame for their own recent energy policy shortfalls on Russia,” adding that “Russia has nothing to do with the current price hike on market volatility.”

The deputy PM noted for many decades Russia has been a “reliable partner” for Europe, saying Moscow has been supplying European nations with roughly 40% of their gas needs.

As of 2021, Russian energy supplies accounted for 17% of global natural gas consumption and 40% of Western European consumption.

Higher oil prices also have a knock-on effect on pretty much everything from consumer spending to the delivery of goods and basic services people rely on a daily basis.

For example, U.S. wheat futures have neared an all-time high on concerns that global supply shipments will be disrupted until the Russia-Ukraine conflict is resolved. European wheat has already hit record highs as more Western sanctions against Russia sparked concerns about exports from the Black Sea region. Russia and Ukraine account for at least 29% of wheat exports.

The German Finance Minister Christian Lindner says Berlin, which is  Europe's largest economy, is not currently planning to stop importing Russian oil, gas, and coal but is keeping the option open.

Last month, the German government decided to freeze the certification of Nord Stream 2 which was supposed to pipe gas from Russia to Germany.

Moscow is now considering a retaliatory measure with Novak saying "In connection with unfounded accusations against Russia regarding the energy crisis in Europe and the imposition of a ban on Nord Stream 2, we have every right to take a matching decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline.”

The top Russian official says Moscow has so far not taken a decision on Nord Stream 1.

Experts say Germany’s economy will be the hardest hit among European nations if Russian oil is sanctioned.

Inflation in Europe and America has already hit record levels and analysts say a situation could unfold with high inflation, high unemployment, weakened global growth with stagflation a very likely scenario.

The U.S. and it’s Western allies are considering a ban on Russian oil over its military action in Ukraine which Moscow describes as a special operation.

One country that has been very vocal in its opposition to the sanctions regime imposed on Russia has been China.

The Chinese foreign minister described his country’s relationship with Russia as “ironclad” as Beijing continues to refuse to denounce the Russian military operation despite growing pressure from the West.

Wang Yi says Russia was his country’s “most important strategic partner” and that ties with Moscow constituted “one of the most crucial bilateral relationships in the world.”

Beijing says sanctions create new problems and threaten a political solution to the conflict. Wang told reporters in Beijing “no matter how perilous the international landscape, we will maintain our strategic focus and promote the development of a comprehensive China-Russia partnership in the new era. The friendship between the two peoples is ironclad.”

Meanwhile, the Russian foreign ministry says sending foreign weapons to Ukraine will lead to a "global collapse”. Foreign ministry spokeswoman Maria Zakharova also warned that the West sending mercenaries and military equipment to Ukraine would cause a catastrophic development.

As fighting rages on, the UN's refugee agency says more than 1.7 million Ukrainians have so far fled Ukraine. Poland, which has the largest Ukrainian community in Central Europe, has received more than one million Ukrainian refugees since the conflict began on February 24.

The Polish border guard service posted on social media that "this is a million human tragedies, a million people banished from their homes by the war”. The same guards have been accused of racism by separating black refugees fleeing Ukraine from white refugees in two separate lines.

UN aid chief Martin Griffiths has called on all parties to allow safe passage for civilians leaving areas of active hostilities in Ukraine in the direction they choose. Briefing the UN Security Council, Griffiths says his office has sent a team to Moscow to work on better humanitarian civil-military coordination.

At the same Security Council session, Vasily Nebenzya, Russia's ambassador to the UN, announced that his country will open humanitarian corridors to allow civilians to evacuate from different Ukrainian cities, including the capital Kyiv and the port city of Mariupol.

The Russian and Ukrainian envoys at the Security Council meeting accused each other of not allowing civilians to evacuate.

According to the Atomic Energy Agency, a new nuclear research facility in Ukraine has reportedly been damaged by shelling. There have been no increase in radiation detected near the damaged facility in north-eastern Ukraine.

The agency did sound the alarm with Director General Rafael Grossi saying “we have already had several episodes compromising safety at Ukraine’s nuclear sites,” The agency is working to ensure nuclear safety during the conflict. “We must take action to help avert a nuclear accident in Ukraine that could have severe consequences for public health and the environment. We can’t afford to wait,” Grossi said.

The Kremlin spokesman Dmitry Peskov says Moscow could stop all operations in a matter of minutes if Ukraine ceased fighting, amended its constitution to declare neutrality, and recognized Russia's annexation of Crimea and the independence of the breakaway eastern regions in Donbas.

The U.S. and NATO have been blamed for triggering and trying to prolong the crisis by promising the former Soviet Union member NATO membership, not implementing the Minsk agreement, and sending dangerous weapons to Russian borders before abandoning Ukraine once the fighting broke out.

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