Steep rise in Oil Price: will it go exponential?

 

Crude oil price in March 2022

The price of crude oil almost briefly touched $130.00 over the fears of a long drawn out conflict between Ukraine and Russia. Although the Russian oil has not come under the punishing Western sanctions yet, the speculation is rife that it will be the next.

As of 11:45 GMT, the price of WTI and Brent stood at $122.55 and $124.80 respectively; crude oil prices have already reached 14-year-old high.

The price of LNG, Liquified Natural Gas, has also spiked in proportion to the cautious sentiments that sweep across the markets.

An extreme move of that kind, however, does not come without a cost for the Western economies; it goes without saying the impact of rising oil prices in every sector in the global economy, ranging from the developing countries to the developed countries.

Since the OPEC+ has not responded enthusiastically to the anticipated shortage of crude oil in the international markets in terms of an action plan, we can just imagine how bad things would be in the event of the Western sanctions being extended to the Russian oil and gas sectors too.

It is equally puzzling how Russia would cope with such an eventuality; it already views the sanctions as a form of declaring war by the West.

Without a substitute in the offing, how the Western nations are going to cope with the impending shortfall of crude oil supply is something that remains to be seen; when you look at the challenges, just on the logistics-front, it is easier said than done.

The rapidly evolving geopolitics since the war broke out in Ukraine will cause ripples in the OPEC+ too in which Russia, not only a key member, but also sees eye to eye with its de-facto leader, Saudi Arabia; the cohesion of the cartel may be under threat too, if the West wants Russia out.

If the war drags on, it is not just the OPEC+ that will be subjected to a stress-test; the NATO, EU and even the UN will be under pressure too as the members do not see eye to eye on quite a few issues; rising energy prices is potentially a key factor that can cause unease among members.

Although the price of crude oil has risen sharply, it cannot be classified as an exponential rise as yet; it is still based on speculation in anticipation of a serious supply shortfall.

The Western leaders may try their best in a very difficult situation not to let the crisis get out of hand – in a short time – that may evolve into a catastrophe, not just ruining economies, but also threatening our own existence.

 

 

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