Global oil markets grappling with rising tensions in the Middle East and sanctions against Russia

Rashid Husain Syed

Geopolitics continues to dominate the energy sector.

Following the outbreak of the Hamas-Israel war nearly two weeks ago, oil markets saw an approximate US$5 per barrel surge. However, markets have somewhat stabilized as neither Israel nor the Gaza Strip are significant oil producers. Market stability is expected to persist unless major stakeholders, particularly Iran, become involved in the war.

Last Thursday, the International Energy Agency stated that market conditions for crude oil are “fraught with uncertainty,” yet the war hasn’t directly impacted crude supplies. A recent TD Economics report also highlighted the unpredictability of global oil prices, noting factors that could elevate or depress prices.

In response to geopolitical developments, oil markets are closely monitoring the U.S. government’s recent tightening of sanctions on Russian crude exports. This included restrictions on two shipping companies accused of breaching the G7’s oil price cap, resulting in a nearly six percent spike in oil market prices.

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On Thursday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced sanctions on two tanker owners transporting Russian oil priced above the price cap: one from Turkey and one from the United Arab Emirates.

The YasaGolden Bosphorus tanker, owned by Turkey’s Ice Pearl Navigation Corp, reportedly transported crude oil priced above US$80 a barrel following the price cap’s implementation.

Simultaneously, OFAC revealed that the SCF Primorye, owned by UAE-based Lumber Marine SA, carried Russian oil priced above US$75 a barrel from a Russian port post-price cap enactment.

Despite the ongoing tensions in the Middle East, Washington chose to proceed with these actions. A U.S. Treasury spokesperson emailed CNBC, “Enforcing our sanctions is central to our effort to limit Russia’s profits from its oil trade. The price cap is intended to maintain the flow of Russian oil while imposing new costs on Russia, not to reduce oil supply.”

Russia has significantly circumvented the Western price cap on its crude exports. Earlier this month, data from its finance ministry revealed a 15 percent increase in oil and gas revenues from August to September, totalling US$7.4 billion (739.9 billion Russian rubles).

In September, the average price of Russia’s flagship crude grade, Urals, was US$83.08 per barrel, surpassing September 2022’s average of US$68.25 per barrel. This price hike contributed to increased budget proceeds from the so-called mineral extraction tax.

Russia primarily shipped its crude to China and India, with smaller volumes dispatched to Pakistan and other countries. Recent hints suggest Russia and Pakistan may be discussing an increase in their bilateral oil trade.

Karachi-born oil trader Murtaza Lakhani, a close associate of Igor Sechin – the head of Russia’s state oil company and a longtime associate of Vladimir Putin – is reportedly responsible for many of the clandestine shipments of Russian crude that overcame the Western price cap. Lakhani has emerged as a prominent figure in the commodities trading world following a risky bet made several decades ago.

The U.S. Justice Department is investigating whether Murtaza Lakhani, founder and CEO of oil trading company Mercantile & Maritime Group, traded Russian oil in violation of the G7 price cap and Western sanctions against Russia, The Wall Street Journal reported last Monday.

But while U.S. President Joe Biden tries to tighten the screws on Russia, he is left with a major choice: Either let Iranian oil flow continue or watch prices spike in oil markets. If he attempts to squeeze the rising Iranian oil exports, markets would spike. He cannot take on both Russia and Iran at the same time.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.

For interview requests, click here.

The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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