Impact of Ukraine Crisis on Energy Market, Opportunity ahead

2022/03/31 | Economy, Note, top news

Strategic Council Online - Opinion: After the Russian military invasion of Ukraine, two important events occurred in the energy market; first, the negative expectation shock in the field of oil supply, which led to an unprecedented rise in oil prices in recent years and second, the European and American approach to Russian energy (oil and gas) imports has intensified efforts to find alternative resources. Reza Majidzadeh - Director of Simorgh Development Working Group, Pasargad Millennium Plan Institute

It was in this direction that the United States turned to Venezuela to persuade it to play a more prominent role in the oil market. Prior to the Ukraine crisis, Venezuela was one of the closest countries to Russia and China, but now it is in a position to lighten the burden of its sanctions by relying on its oil resources. However, negotiations between the United States and Venezuela have not advanced as it was expected.

On the other hand, in this part of the world, Russia is trying to prevent the revival of Iran’s oil supply by asking for a written guarantee from the United States and preventing a return to the nuclear deal, in order to not creating a rival for its position. This effort is not new, and in the mid-2000s, Russia threatened European countries that it would cut off gas exports from Ukraine.

The European Energy Charter was also drafted with concern over energy security, as such that diversification of energy resources was emphasized in it, and Iran, with its abundant gas resources, was a potential option for supplying energy to European countries, but some took this opportunity from Iran and deprived Iran of the opportunity to join the Nabucco project. Such an opportunity has resurfaced now, although for some reasons the possibility of its burning at the present time is not far off.

In fact, the US shift to alternative resources of oil supply will not be permanent because, on the one hand, rising oil prices will increase the economic efficiency of alternative energy sources; what has happened in recent decades and, on the other hand, is the end of the Ukraine crisis, whether in the form of ending Putin’s military aggression and attaining permanent ceasefire, or in the form of Russian domination over Ukraine, which means maintaining Russia’s pre-crisis energy position, especially in Europe; because the sharp rise in the gas price raises the cost of adhering to Russian sanctions for Europe and Russia’s role playing in preventing rival countries such as Iran and Qatar from increasing their share could improve the situation. At the same time, the realization of the scenario of Russia’s domination over Ukraine will mean an increase in the bargaining power of that country in the face of Europe.

Under the current situation, the United States is not only looking for an alternative to Russia, but also supplying gas and LNG (liquefied natural gas) to Europe, and increasing production in the North Sea (mainly by Norway and Britain) would somewhat alleviate European energy concerns.

The European Union’s energy stock, which has a long history of contributing to the efficient allocation of energy resources across Europe, is another factor in easing this concern compared to the gas crisis of the early 2000s. Although Iran has the second largest gas resources in the world, in recent decades, in terms of gas exports, has lagged far behind Russia and Qatar, and much of the gas is consumed domestically. A balanced approach to foreign policy in the current situation is the key that can guarantee political independence of the country, pave the way for increasing gas export capacity and economic development of our country.

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