With the end of sanctions against Russian energy companies, the global economy is in shock.
Russia export About 5 million barrels of oil a day. Some of this oil will find its way into markets around the world, but it is one of the greatest oil shocks in history.
Goldman Sachs has published a study on previous oil shocks in the table below. Circles highlight post-war disruptions in oil prices.
Oil shocks throughout history
History of oil shocks
Early shocks have led to significant changes in the market.
The Arab oil embargo in 1973 led to a rise in OPEC and set the countries producing oil as price-fixing.
In 1978, the Iranian revolution led to the almost complete abolition of a major manufacturer from the world market. This has affected oil prices for years.
The Gulf War in the early 1990s temporarily removed oil from the market, but other producers intervened to offset the loss.
The series of events related to Iraq and Venezuela in the early 2000s occurred because the trend had already risen in oil prices. This created short-term volatility and seems to have accelerated the existing trend.
The large (and recent) supply shock did not have a significant effect on prices.
In September 2019, skimmers were used to attack oil processing facilities in Abkayak and Khuris in Saudi Arabia. The attack strikes half of Saudi Arabia’s oil production capacity. But the state was able to use reserves to maintain export levels until the facilities were repaired within weeks.
What to expect after the invasion of Russia
Sanctions against Russia appear to be very similar to events that began in 2001. Supply was adversely affected at a time when prices were already rising.
Oil can continue higher unless global economy slowing down.
This is the most likely outcome so far.
Inflationary pressures have already reduced consumer spending. The risks of recession increased before the war.
The Bottom Line: An economic slowdown will reduce demand for oil, which should offset the loss of Russian production.
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