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The IEA fears that the Russian invasion of Ukraine will cause the biggest oil supply crisis “in decades” | Economy

Crude export terminal in Novorossiysk (Russia), in May 2018.
Crude export terminal in Novorossiysk (Russia), in May 2018.STAFF (REUTERS)

The International Energy Agency (IEA) puts lyrics to the shock that the Russian invasion of Ukraine has caused on the world market for fossil fuels. The arm of the Organization for Economic Cooperation and Development (OECD) for energy issues warns in its latest monthly report that the war leaves oil on the verge of “the biggest supply crisis in decades” and energy markets as a whole ” at a crossroads.” “Energy security has returned to the forefront of political agendas and, while it is still too early to know how events will unfold, the crisis may bring about lasting changes” in the industry, read the document, published on Wednesday.

The Paris-based agency calls not to “underestimate” the implications of Russia’s disappearance from the world oil export market. A giant, which he underlines, sells eight million barrels a day between oil and derivatives. Despite the fact that only two countries, the United States and the United Kingdom, have so far announced a lockdown on imports of Russian crude, the main oil and transport companies have already withdrawn from that market. That movement, according to IEA technicians, will reduce the Russian supply by about three million barrels per day, almost 40% of the total.

“Refineries, especially in Europe, are struggling to find alternative sources of supply and risk having to reduce their activity. And any narrowing of the market ends up hitting consumers”, reads the study. The Organization of Petroleum Exporting Countries (OPEC) is contributing to this imbalance between supply and demand to a large extent. Among the 13 members of the cartel, only two — Saudi Arabia and the United Arab Emirates — have, according to IEA data, a “substantial spare capacity” to compensate for the smaller Russian contribution.

Nor does the Agency believe that Iran’s return to the market, which would mean an injection of one million barrels a day of supply but for which a new nuclear agreement is an essential condition, is just around the corner. “It could take months,” he calculates. Outside OPEC, the increase in pumping could come from the US, Canada, Brazil and Guyana. Any potential increase, however, is “limited” in the short term, according to the IEA, which underlines that even before the invasion of Ukraine ordered by Vladimir Putin, the volumes of crude oil in inventories “were falling rapidly”: at the end of January , OECD country reserves were at an eight-year low.

Less demand than expected

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The significant drop in Russian supply will be —only partially— offset by demand that will grow less than expected so far due to a combination of higher prices and lower economic growth. The increase will be 2.1 million barrels per day, almost a million barrels less than forecast in the latest IEA outlook. In this way, world demand will be slightly below 100 million barrels.

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