2- While we have to distinguish between ending the war and ending the sanctions, ending the war alone will have ramifications for the energy markets: some countries, even in Europe, will not enforce the sanctions or will turn the blind eye to the violations of sanctions.
3- By ending the war, Russia will get support from several countries that will argue for ending the sanctions. The mere talk of ending the sanctions will encourage various countries to break them. Meanwhile, Russian oil & gas will flow to China, India, and OPEC+ members
4- Ending the war will lower oil prices & oil price differentials. It will also lower the prices of natural gas, LNG, coal, and power as the implementation of sanctions is weakened. Now imagine the impact if sanctions are lifted even partially.
5- Politicians in the EU & US might find it a great opputunity to lift some sanctions to ⬆️ energy & grain supplies & 🔽 inflation. How many politicians have to resign before they realize that the only way to provide energy & food at reasonable prices is to loosen sanctions?
6- While the US will fight tooth and nail to keep the sanctions that are affecting Russian gas supplies to Europe to
a- prevent Putin from influencing Europe
b- guarantee a large market share for its LNG
The primary loser from ending the war and sanctions is the US LNG industry
a- prevent Putin from influencing Europe
b- guarantee a large market share for its LNG
The primary loser from ending the war and sanctions is the US LNG industry
7- Sanctions are here to stay, but the partial lifting of sanctions after the war ends is the most likely scenario. Sanctions related to insurance, investment, and exports of certain technologies and spare parts will be lifted, some partially.
8- The re-integration of the Russian economy into the world economy means a partial end to the ruble payments for oil and gas. that will enable some European countries to re-start importing oil, gas & coal from Russia. It will also lead to ruble depreciation.
9- The impact of ending the war and the partial lifting of sanctions may not be equal. This creates problems in energy markets and would limit the decline in energy prices.
While energy prices will decline, the decline might be limited if LNG prices remain high.
While energy prices will decline, the decline might be limited if LNG prices remain high.
10 - If Russian gas exports face problems: higher LNG prices lead to substitution. Substitution prevents the prices of other energy sources from declining substantially. Also, unwinding the inefficient trade routes that took because of war and sanctions takes time.
11- While energy prices will decline as the war ends & sanctions are partially lifted, the decline is limited by Russia itself. It will take time to go back to the forecasts made in 2019. Unlike in the past, Russia itself might find itself better off with higher energy prices
12- Brent prices, without war, sanctions & a recession should be in the low $80s.
Problem: Will the end of the war cause a global recession? This is subject to debate. The evidence is mixed. I think OPEC+, including Russia, will cut production again if oil futures decline to $60
Problem: Will the end of the war cause a global recession? This is subject to debate. The evidence is mixed. I think OPEC+, including Russia, will cut production again if oil futures decline to $60
13- Ending the war and the partial lifting of sanctions would be followed by a rush around the world to invest in projects that ensure energy and food security. Such projects will also limit the decline in energy prices.
Problem: With such a rush will ESG mandates change?
Problem: With such a rush will ESG mandates change?
14- In light of the above, will the US and EU focus their efforts to resolve the various issues related to Iran and Venezuela? Will energy supplies from both countries become part of the solution to "energy security"? What about relations with Saudi Arabia & OPEC+?
15- Lifting the sanctions partially will not only help the Russian oil industry get the expertise and the spare parts it needs to increase production but the decline in the ruble will also help the industry reduce its cost. Most of the cost is domestic.
16- To conclude:
- Ending the war will lower energy prices & reduce oil price differentials.
- Lifting sanctions partially will lower them further, change Russia's rubel requirements and lower the ruble.
- But the decline in energy prices is limited for various reasons
- Ending the war will lower energy prices & reduce oil price differentials.
- Lifting sanctions partially will lower them further, change Russia's rubel requirements and lower the ruble.
- But the decline in energy prices is limited for various reasons
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