In December of last year, the G7 economies – backed by the EU and Australia – imposed price caps on what they’ll pay for Russian crude oil. Now Russia is following up on its threat to retaliate by cutting its oil output by about 5% in March, sending energy prices higher. An EU spokesperson has said the oil cuts won’t affect oil prices long-term but, as Straight Arrow News contributor Peter Zeihan argues, there’s a real concern about the stability of Russian production, not just because of the war, but because of Russia’s geology.
Excerpted from Peter’s Feb. 14 “Zeihan on Geopolitics” newsletter:
The big news from the weekend is that Russia announced a plan to cut 500,000 b/d (barrels per day) of oil production. This accounts for about .5% of global supply and roughly 10% of Russian oil exports.
This alone isn’t a huge deal, but when you stack up all the factors working against the Russian oil industry, some concern over its stability is warranted. Struggling to break even, the potential of wells freezing and bursting due to crude flow disruptions, the Ukraine war… that’s a hefty list and it wouldn’t take much to throw everything into a tailspin.
I’m not sounding the alarm bells quite yet, but it’s a good reminder as to just how fragile this whole system really is.
