ERBIL, Kurdistan Region - The price of a barrel of Brent crude on Thursday surpassed a hundred dollars for the first time since 2014 as Russia launched a military offensive on Ukraine.
Despite a hike in oil prices over the past two months, Russian President Vladimir Putin’s address on state TV in the early hours of Thursday, announcing a military offensive on Ukraine, pushed global prices to their highest level in almost eight years.
Markets fluctuated incredibly when Putin recognized the independence of the pro-Russian Donetsk and Luhansk regions earlier this week and said he would provide them with “peacekeepers.”
Putin on Thursday not only launched a military offensive against Ukraine, but also vowed retaliation against any country that interfered.
The US and the EU have already started imposing sanctions on Russia which holds around five percent of the world’s oil reserves
Germany on Tuesday halted the Nord Stream 2 Baltic Sea gas pipeline project, Reuters reported. The gas pipeline was designed to double the flow of Russian gas to Germany and it is worth $11 billion.
The US soon joined in and imposed sanctions on Nord Stream 2 AG Company and its CEO, who are in charge of building the pipeline.
As sanctions continue to be imposed on the world’s largest natural gas exporter, and Moscow continues its offensive, oil prices are expected to continue increasing, contrary to the expectations certain analysts had in 2021.
“The crude demand outlook is very robust as recoveries across the US, Europe and Asia, will have demand return to pre-COVID levels in the second half of next year,” analyst Edward Moya told CNBC in June, adding that even non-energy traders are placing bets on the increase in oil prices.
“We think that oil prices could reach around $80 per barrel,” Homayoun Falakshahi, senior commodity analyst at Kpler, told Rudaw’s Omar Moradi at the time. “We are hearing words right now that oil could reach back to 100 dollars per barrel. We think this is farfetched, mainly because a lot of the supply remains artificially out of the market right now, mostly due to OPEC cuts.”
However prices spiked much earlier and contrary to the International Energy Agency (IEA) June report which said prices would take until the end of 2022 to return to pre pandemic levels, prices hit the highest in over seven years in the first two months of 2022.
The spike in prices could be a good sign for the Middle East.
Countries such as Iraq will benefit from high oil prices as their economy is dependent on oil revenues. The country's economy has been booming with the surge in prices.
Iraq in January pocketed over eight billion dollars, exporting over 99 million barrels of oil.
The country suffered for much of 2021 due to record low oil prices, however the higher prices go, the more Baghdad pockets.
Across the border, Iran could potentially benefit from increasing oil prices as well. The Ukraine crisis could be used as leverage for Iran to enter the oil market again and for US to reach an agreement with Tehran in Vienna.
Iran’s 2015 nuclear deal with world powers allowed it to sell crude oil on the international market, but former US President Donald Trump withdrew from the accord in 2018, forcing Iran to sell its clandestinely, likely at a major price markdown.
Iran's re-entry to the market could help stabilize oil prices by bringing closer demand and supply.
OPEC is set to meet again on March 2 and is expected to touch upon the impact of the recent developments between Russia and Ukraine, and members may have to review their decision on cutting the production of oil globally.
