By VK
Foreign ministers of 27 EU states recently held a session in Brussels and approved an embargo on Iranian oil exports. The new sanctions were provoked by Tehran’s refusal to cooperate with the international society in resolving its disputed nuclear program, the European Union says. Vitaly Bushuyev, Director of the Institute for Energy Strategy, has expressed his vision on the way growing oil prices would develop and the current situation on the global energy market.
The expert believes that the world petroleum market is in critical condition. The oil market has become the most distinct aspect of the financial market. Bushuyev believes that oil prices are affected by three basic factors.
Firstly, supply and demand depend on economy and resources. But they are not the main factor because there is no deficit of oil and gas predicted in the near future.
Secondly, the geopolitical factor is the most notable. World leaders, the US, Europe and China, have taken up a new course to lose dependence on natural resources, i.e. imports of hydrocarbons. Europe stimulates renewable energy. The US develops oil extraction from heavy sands in Canada and shale gas and other energy carriers. China has understood that dependence on oil resources from abroad is a strategic risk and started production of liquid and gas-like fuel from its oil mines. Thus, reduction of demand in advanced and developing states reduces efficiency of oil business dramatically.
Thirdly, the economic factor. The conjuncture of oil market is determined by currency flows, flows of free capital. As soon as free cash appeared without use, it was allocated to the market of oil futures with expectations that there would always be demand for oil. Confrontation of the Middle East and the rest of the world is becoming the order of the day. The events in Libya and Iran have affected the state of the world petroleum market, not in terms of energy deficit, but rather in terms of stimulation of escaping oil dependence. Regarding the situation in Iran, the oil market “won” its positions back. Ever since the talks on the embargo on Iranian oil exports started in Europe, the prices for a barrel of oil increased from $103 to $114. The prices have started dropping.
The resultant of all the factors put together is about 0. If there were no political confrontation, the price would have fallen to $80 per barrel because there is no free cash. All advanced states have learned that financial injections do not cope with the crisis. There were no injections so the price did no reduce.
The expert believes that escalating tensions around Iran provoke oil prices to reach $150-200 per barrel. He reckons that Saudi Arabia would easily compensate 2.5 million barrels of oil Iran provided for southern Europe. Moreover, all members of the European Union have enough oil reserves for three months.
If turbulence around Iran stops in 2012, oil prices would drop to $80 per barrel. “The economic crisis that we have not only failed to cope with, but which we are only entering, shows that there is no industrial development expected in the world in the near future. This is why, according to our views, oil business is at risk. And this is a great threat for Russia”. Russian exports are 55% dependent on oil and 70% on gas, which is why the need to lose oil dependence is obvious.
