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Russia-Ukraine conflict and test for Pakistan

A major catalyst it leads to is the economic devastation around the world, Pakistan not excluded

As Russia feels it’s influence escaping modern day Ukraine, it must tighten its grasp on the throat of the region and establish its undisputed dominance upon it; perhaps as the final piece in the puzzle that is Putin’s decades long legacy. The lives lost, and regional devastation would be a tragedy remembered for years to come.

In spite of that, the sphere of impact from Russia’s moves does not stop there. A major catalyst it leads to is the economic devastation around the world, Pakistan not excluded. That would be in the form of a major economic shock to oil supply, and consequently the price surge as a result of it.

Oil prices are already soaring at a 7-year rise, brent crude oil as of writing has reached $89 per barrel, which was “only” $77 per barrel in December of last year and has had a recorded rise of over 55% already in the past 12 months. Ostensibly, this is only the start of the mayhem that will rise, as the prices are expected to go far beyond this, at least according to the Wall Street consensus which expects the prices to reach beyond $100 by summer this year, not far away from Putin’s estimate months back.

The oil crisis incoming, can simply be attributed to underestimated physical demand in contrast to low running inventories of oil across the globe. As oil producers have been unable to pull their feet off the brakes, they put on oil production two years ago citing the fresh covid crisis as a basis to pull back on production. Further, The Central Banks worldwide are opting for a tighter monetary policy to combat the stubborn inflation largely a result of the covid circus touring economies around the world.

As a result, oil production is lagging behind, as new investment into the oil industry is barely existent, while labor shortages are running rampant for the largest oil producer of the world, USA. Which showed a contraction in its oil production in the year 2021 from previous years, while whispers of massive increase in oil production is in the air, substantial foundation for it is yet to be seen.

Elsewhere OPEC and Russia – OPEC+ has made it crystal clear that it will not deliver its wild claims, considering in December it was only able to clock in about 253,000 barrels daily, a far cry from its 400,000 barrels daily target for yet another month in its continuing gauntlet of disappointment. It is evident OPEC’s spare oil capacity is a problem that will only deteriorate with time, as there has yet been any serious effort to remedy it. With the drone attack on the oil facility in UAE further showing how vulnerable to geopolitical shocks the oil market really is.

Now how does the threat of Russian invasion of Ukraine angle into this is beyond the obvious. It is simply because of the dependency of the EU as a whole on Russia for its immense energy usage. Russia supplies over a quarter of oil imports, and about one third of natural gas imports to the EU. If, or rather when Moscow goes full throttle on its plans of invasion. Washington has been crafting plans of its own to provide the EU with an alternative energy supply network, to allow it to be unaffected by Putin’s threats regarding restriction of energy exports and rather in turn allow the EU to impose sanctions on Russia, if need be. However, it comes in the form of Disneyesque solutions far from practicality, such as air supplied LMG, which is painstakingly more expensive than natural gas being supplied directly through pipelines. 

Barring smaller nations such as North Macedonia aside which has 100% of it’s gas supply from Russia. Even a major political player such as Germany is at mercy of Russia with 49% of gas supply coming directly from Russia, much of it from transit under Ukraine (who offered Russia discounts for transit, to not lose on major income 3 months back). To avoid these transits NS2 pipeline has been constructed between Russia and Germany awaiting its launch amongst the rising political scrutiny by the west.

History has shown when it comes to economic factors, morality, justice, all these emotional words are laid to the side. And one of the best examples exists in the Oil market already, with the USA bending backwards for “human rights violating” countries, and of course bending human rights itself.

Winter is coming for the oil market, and Islamabad is in yet for another test, and the barrage of existing failures does not make it look promising for the common person trying to get to their work without burning through their pocket.