BUSINESS CANADA: The lasting effects of Putin's war may be 'demand destruction' and fractured global trade

 

As buyers shy away from Russian oil, security concerns are reshaping global economy

Shortly after Canada and other Western democracies announced sanctions on Russia, the world heard a frightening warning about the impact they would have — not just on Russia, but on the global economy.

The warning came from Russia's deputy prime minister, Alexander Novak, and its focus was the world price of oil.

"It is absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the global market," Novak said in a televised statement.

"The surge in prices would be unpredictable," he warned. "It would be $300 per barrel, if not more."

As the North American price of oil fell back to about $100 this week, it was easy to scoff at the Russian official's alarmist warning.

But while there are good reasons that oil prices above $300 US are not in the cards, the invasion of Ukraine has set in motion a series of events that will lead to a serious disruption of the global economy — likely to affect Russia and Western democracies long after the bombs have stopped falling in Ukraine.

There are two key parts of that disruption. One is something called "demand destruction" — the move to use less of the high-priced commodities produced by Russia. The other is a new global quest for greater security in supply chains in a world that has proven itself more volatile than most of us had thought just a few months ago.

As representatives of the oil cartel OPEC gather in Vienna on Thursday, and peace talks in Turkey offer glimmers of hope that the killing of Ukrainian civilians in Vladimir Putin's reckless war might end, the volatile price of oil has retreated again.

But even as Brent crude — the world oil price used outside North America — reached toward $130 US a barrel, experienced oil market watchers like longtime petroleum geologist and energy analyst Art Berman said Novak's prediction was laughable.

"A Russian official's opinion about oil price is worth as much as Donald Trump's opinion about results of the 2020 U.S. election," quipped the Texas-based Berman in a recent email conversation.

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