A degassing station in the Zubair oil and gas field, Iraq
Oil prices have eased back to $100 a barrel levels, but some concrete measures need doing to let the volatility settle. Image Credit: AFP

Global economies have not much time to pick their way through the COVID-19 crisis when they got hit by another – the Russia-Ukraine conflict and the various levels of fallout from it. It could be that this particular disruption could end up causing more damage than what the pandemic wreaked.

In the first crisis, the world was united in the fight against coronavirus and overcoming its debilitating effects on the global economy. In the second crisis, the world seems to be dangerously divided. The repercussions from the conflict will affect all countries, in varying degrees.

The economic implications are many. However, the focus here is on the biggest source of worry, such as the sudden and steep rise in prices of oil and gas after reaching their record highs since 2008. This happened despite oil and gas supplies having mostly been excluded from sanctions, except by the US and the UK whose imports of Russian oil amount to 800,000 barrels per day.

If not, a weakened global economy cannot withstand the boycott of Russian energy supplies. Accordingly, the European countries have taken a reasonable decision based on their national interests.

Russia maintains supplies

Russia has been keen to ensure its oil and gas supplies continue and has not taken retaliatory measures. It has repeated the point that it will not resort to such a step. Nevertheless, these assurances have not prevented prices from rising due to concerns over the course of the conflict.

Opec+, particularly the GCC members, have taken a balanced position considering the interests of the global economy. They continued to increase production by 400,000 barrels per day on a monthly basis, in accordance with the previous agreement, knowing that Opec+ will discuss the distribution of production quotas at their meeting scheduled for next month

Opec+ countries will certainly benefit from these price highs, which will strengthen their financial situations and eliminate budget deficits, and even help lead to surpluses. Nevertheless, the developing countries, which are already suffering from the recession caused by COVID-19, will be most affected.

What will the EU do for energy?

European countries too will be affected by the price hikes, and their consumers will suffer from a significant rise in inflation, especially since they impose taxes ranging between 80-100 per cent in the EU states. This will in turn lead to a further rise in energy prices that can no longer be tolerated by European consumers. In this case, the governments may reduce these taxes to alleviate the burden of rising prices.

If the blame for the dramatic shift in oil prices was put on producing countries in 1973 - because of the embargo that was imposed by Arab countries during the Arab-Israeli war - the blame for the current situation lies elsewhere. This is because most of these countries are producing oil at full production capacity, and Russia has refrained from cutting supplies to avoid the possibility of setting off a global downturn.

There have been no public protests in importing countries criticizing the producing countries, particularly in the West, as happened in the past, at a time when the need for energy sources has increased in order for all economies to get back into sustained growth.

Yet, geopolitical interests overlap with the economic ones creating a state of chaos. While geopolitical interests are undoubtedly important to the security of states, taking them out of their balanced context is counterproductive. This is why it is very important to resort to reason that links these two components properly, and which requires the art of crisis management with proficiency.