Russia is not considering joining the ‘energetic embargo’ against Iran, the Energy Minister Sergei Shmatko told RIA Novosti. He explained this position by the fact that Russia itself is a major oil and gas exporter, so it doesn’t consume much of Iran’s hydrocarbon’s anyway. Earlier, Iranian Foreign Ministry representative Ramin Mekhmanparast suggested that the ‘energetic embargo’ will result in increase of oil prices up to 250 dollars per barrel.
Another factor that might contribute to the growth of oil prices is the ongoing Eurozone crisis. The head of the oil and gas ‘RU-Energy Group’ holding Azad Babayev and the leading expert of the Political Conjuncture Center Dmitry Abzalov tried to explain the connection between these two factors and their possible contribution to the state of oil market. While Mr Babayev believes that the crisis of the Eurozone will have no major effect on oil prices, Mr Abzalov sees a direct connection between these two spheres of global economy.
Azad Babayev expressed hope that the EU will be able to deal with its financial difficulties on his own. According to the expert, despite long delays the EU is able to do so in a short time. Nevertheless, situation in Eurozone has a certain effect on oil-price forming so it affects Russia’s interests. Oil prices are growing by day and they are unlikely to go down any time soon due to the instable situation in Arabian states. Mr Babayev said he couldn’t exclude the possibility of 150 dollars per barrel price in 2012, especially if the US and the EU are to introduce additional sanctions against Iran and Syria. On the other hand, there’s an opportunity that the OPEC will decide to increase the oil processing output to compensate for the lack of Iranian and Syrian oil.
However, oil price is not a simple equation featuring demand and supply, as Mr Abzalov pointed out. It is an indicator of global situation in general, and there’s a great deal of speculation in it. As for the Eurozone, Abzalov voiced three general tendencies existing within it: Germany is trying to make the division responsibility more rigorous by creating a super-national Finance Ministry. France, on the other hand, tries to consolidate the position of the European Central Bank and to divide the responsibility between different players. At last the third group, which includes Italy, stands for Eurozone preservation at any cost. According to Mr Abzalov, oil price and Eurozone status are connected in the most direct way: “Today the issues of oil developing and oil processing are tightly connected, and if there’s a collapse in Eurozone, in German, for example, that would affect China – the major consumer of energy resources. Certain tendencies towards decrease in oil price have been noticeable since the third quarter of this year. On the other hand, the expert noted, the instability may cause the investors to protect their assets thus increasing gold and oil prices. Abzalov concludes that there is a possibility of oil price spike in the beginning of the 2012 but later the decrease of production may cause drop in price. In addition, the EU countries are actively exploring alternative energy sources, so the level of oil demand in 2012 for this region remains to be determined. Another important factor in oil price formation is of political nature: 2012 is the year of presidential elections in the US and France.
Recently the OPEC made its prognosis of oil prices for the period of 2012-2035, at this average figure is 85-90 dollars per barrel. However, in Babayev opinion this prognosis is far too pessimistic. As far as possible introduction of new economic sanctions against Iran is concerned, the expert doesn’t believe that it will be the case, as the US and the EU are not interested in oil price growth – and it will be exactly the effect of such sanctions.
According to Dmitry Abzalov, if the sanctions are to be introduced at least at 80% scale oil price would increase by 25-30%. He agreed with his colleague that if politics gets involved in the process, the price might rise up to 200 dollars. However, such a high price won’t be able to hold for long. There is yet another factor: experts don’t exclude the possibility of a military operation in Iran, which would boost the oil price at an enormous scale, as oil deliveries from the whole region will be temporarily cease.
As for the CIS oil price in the context of Eurasian integration, Mr Babayev said that Russia still should develop the energy-related relations with its partners on a market basis, and current misunderstandings with Belarus and Ukraine only prove this point.
Russian budget heavily depends on energy resources export, and that creates a certain risk. According to Dmitry Abzalov noted that even with the price of 91 dollars per barrel Russia won’t meet any difficulties, and even with the price of 75-80 dollars the budget will be carried out properly. However, Saudi Arabia’s budget is written with regard for a 25 dollar price. Such considerable drop in oil price may have a disastrous effect on Russian economy, but nevertheless the Russian Monetary Fund has reserves to hold the inflation back for at least half a year.
Azad Babayev also said that petrol prices in Russia are unlikely to grow the next year as the government will hold them back. However, according to Mr Abzalov, government is prepared to hold the prices back only during the election campaigning and is able to do so only for a half-year, as this is the term of its agreement with petrol producers. After that there is a risk of abrupt spike.
