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Russian oil exports have dropped to the lowest levels since December.

Bloomberg reported on Tuesday that exports from Primorsk and Ust-Luga, two of the country's main ports, are down 41% in the last month and are on track to keep falling.

Russian Urals oil has dropped to around $76 per barrel, reaching a new 5-week low. This decline aligns with a general downward trend in crude oil prices since mid-July, driven by renewed ceasefire negotiations in the Israel-Hamas conflict. Ceasefire efforts in Gaza, facilitated by Egypt and Qatar, have gained momentum, with Israeli Prime Minister Netanyahu indicating that conditions for a deal are improving. Meanwhile, the Russian government has discussed with Havana the construction of an oil refinery in Cuba in collaboration with Russian companies.

Oil prices rose slightly on Friday but remained on track for a third straight week of decline due to weak demand in China, the world's largest crude importer, and expectations of a ceasefire deal for the Gaza war and related violence in the Middle East.

Brent crude futures for September rose 12 cents, or 0.2%, to $82.49 a barrel by 0014 GMT. U.S. West Texas Intermediate crude for September increased 13 cents, also 0.2%, to $78.41 per barrel.

Global oil prices slid for the third straight day Tuesday, reflecting investors' deepening concerns about declining demand.

Brent crude, the global price benchmark, for September delivery fell as much as 1.7% to a one-month low of $83.40 per barrel. Since July 4, brent crude has dropped 4.6%.

Oil futures edged lower Monday, struggling to recover from a selloff last week that saw crude fall to their lowest since mid-June on concerns about the outlook for demand from China.

Price moves

Previous power transitions show that major powers are by no means doomed to trip into the Thucydides Trap during an era of fluidity. But periods of transition do inflame a whole basket of risks. The uncertainty associated with crumbling hierarchies and the militarization of foreign policies to compensate for perceived weaknesses can heighten the dangers of advertent and inadvertent escalation associated with closing windows of opportunity. These periods are also associated with the tightening of alliances and the accumulation of crises, as well as the spillover of conflicts between political, economic, and ideological domains amid declining ideological agreement between major powers.

All these systemic instabilities increase the probability of war — and they do so in large part through the dynamics unfolding among middle and smaller powers. Worrying about how power shifts drive direct conflict between great powers is not wrong but incomplete. System-shaping wars often grow out of ambitions, aggressions, and miscalculations involving other states, which eventually pull opposing great powers into major wars, crises, and proxy wars. This pattern crops up again and again: Serbia and Austria-Hungary before World War I, the division of the Korean peninsula and the Korean War, the Suez Crisis, the Kosovo War (with the infamous Pristina Airport Incident), the Syrian and Libyan civil wars (with foreign powers vying for influence), and on to the current Russia-Ukraine war (with Western support for Ukraine via money and military equipment). The assortment of “dangerous dyads” scattered over the globe — including in the Caucasus, the Middle East, South Asia, and East Asia — does not bode well for regional stability.

In addition, the transition to clean energy will wind up augmenting the influence of some oil and gas exporters by concentrating global production in fewer hands. Eventually, the demand for oil will decline significantly, but it will remain substantial for decades to come. Many high-cost producers, such as those in Canada and Russia’s Arctic territory, could be priced out of the market as demand (and, presumably, the price of oil) falls. Other oil-producing countries that seek to be leaders when it comes to climate change—such as Norway, the United Kingdom, and the United States—could in the future constrain their domestic output in response to rising public pressure and to hasten the transition away from fossil fuels. As a result, oil producers such as the Gulf states—which have very cheap, low-carbon oil, are less dependent on the financial institutions now shying away from oil, and will face little pressure to limit production—could see their market shares increase. Providing more or nearly all of the oil the world consumes would imbue them with outsize geopolitical clout, at least until oil use declines more markedly. Other countries whose oil industries might endure are those whose resources can be brought online quickly—such as Argentina and the United States, which boast large deposits of shale oil—and that can thereby attract investors who seek faster payback periods and may shy away from longer-cycle oil investments given the uncertainties about oil’s long-term outlook.

No region of the world is more immersed in the consequences of global climate change than the Middle East. The region accounts for about 30 percent of global oil production, and oil revenues drive government revenues in the region—either because the countries produce oil, or because the countries produce a labor force that works in oil-exporting countries and sends money home. Because of oil revenues, Middle Eastern governments can afford to employ large percentages of their own populations, and they do. As the world turns away from oil as an energy source, the economics of the Middle East will change profoundly.

At the same time, the Middle East is subject to the consequences of climate change. The region is already desperately water poor—nine of the ten most water-poor countries are in the Middle East. Drought is pushing farmers off their land, the region’s many coastal cities are threatened by sea level rise, and rising summer temperatures increasingly combine with humidity to put human survival at risk.

The low oil price environment in the global market is dragging the Middle Eastern oil-producing countries to collapse, whose economies are strongly dependent on crude oil production and exports.

Due to the novel coronavirus (COVID-19) keeping global oil consumption weak, and the oil price war between Saudi Arabia and Russia, crude oil prices are fluctuating below $30 per barrel since March 6 when OPEC and non-OPEC nations failed to reach an output curb deal.

Oil has shaped international conflict for decades. According to one estimate, twenty-five to fifty percent of interstate wars between 1973 and 2012 had oil-related linkages. 1 But the cyclical nature of oil’s contribution to global conflict is not well understood. Not only are oil prices cyclical, but the geopolitics of oil are linked inexorably to the same boom and bust price cycle.

Military adventurism, proxy wars and regional pathologies in the Middle East expand and contract with the ebb and flow of massive petrodollar accumulations related to the oil price cycle.

Jennifer Sor 23, reporter, BA in Economics and English from UC Santa Barbara, 8/20/2023, "The resilience of Russia's stock market and its economy is a complete mirage masking deeper pain, Yale researchers say," Markets Insider, https://markets.businessinsider.com/news/stocks/russia-economy-stock-market-putin-ukraine-war-moscow-investment-sanctions-2023-8, christian

That apparently stellar performance of the Russian stock market this year is ultimately an illusion meant to mask deepening pain in the country's economy. The Moscow Exchange, Russia's largest benchmark equity index, has soared 43% since the start of the year, more than doubling the gains seen in the S&P 500, but those gains are deceptive, according to Yale researchers Jeffrey Sonnenfeld and Steven Tian.

Moscow has been engaged in "long term" discussions with Beijing but has been so far unable to strike a deal with Beijing in securing loans in the Chinese currency, the yuan, Russia's finance minister has said.

The comments by Anton Siluanov come as Russia seeks to pivot away from the West due to sanctions imposed by its full-scale invasion of Ukraine which has led to a huge boom in trade with China.

As production becomes more fragmented, the burden on OPEC+ to restrain production to keep prices up will become increasingly futile, said the analysts. The risk of producers failing to anticipate or coordinate to prevent oversupply is real, so an oversupply scenario should not be completely disregarded. 

Prices and market dynamics  

Therefore, our empirical findings partially confirm the theoretical justification of the responses of Russian NWF to Oil Price Shocks. Besides, several empirical studies corroborate our empirical findings. The positive response is evident only at low quantiles or negative values of ODS and OSS, indicating that negative demand and supply oil shocks may transmit some positive effects on NWF through the channel of Russian ruble depreciation. These findings are in line with Koh (2017), who reveal that oil-exporting countries with a flexible exchange rate regimes can rectify the negative effects of oil price declines through currency depreciation. Consequently, oil-exporters benefit by gaining more ruble revenues, and the NWF account assets are revalued with a positive outcome. We also agree with Lin and Su (2020), who argue that positive oil supply shocks may bring risks of Russian currency appreciation. We assume that an extremely high oil price caused by reduced oil extraction or supply constraints induces losses of oil and gas revenues in oil-exporting countries along with currency appreciation in the shortrun. Thus, NWF experience a negative exchange rate difference. Besides, our results are partially consistent with Cashin et al. (2014) that a surge in oil price driven by supply-side spurs economic activity in countries involved in oil exports. However, we find this effect more pronounced in the longer run, when the economy has relatively adjusted to the extreme high oil prices, suggesting that selling oil by price exceeding the cut-off price contributes to the accumulation of a part of petroleum revenues on NWF accounts. One example is the recent establishment of oil trading channels between Russia and Asian countries, despite the EU embargo on Russian oil. Our baseline findings regarding the positive response of NWF to ODS are generally consistent with Holm (2014a, 2014b) for SWF of Norway; Jibril et al. (2020) for Saudi Arabia; Pauhofova ´ and Svocakov ´ a ´ (2016) for Kazakhstan and Russia. Since we investigate the response of FNB using quantile dependence, we find, however, that this effect is mainly observed at lower quantiles of the demand shock. Our findings that in case of an extremely low oil price (below the cut-off price) in the long-run, negative oil shocks force the withdrawal of money from the NWF to compensate for the budget deficit corroborate with Mohaddes and Raissi (2017) suggesting that high commodity volatility diminishes economic performance in resource-dependent countries, so money accumulated in the sovereign funds can be used for economic recovery. Holm (2014a, 2014b) as well as Pauhofova ´ and Svoc´ akova ´ (2016) also exhibit the long-lasting effect of oil market shocks to SWF of Norway and NWF, respectively. Thus, the Russian National Wealth Fund reacts almost similarly to negative oil market shocks, whether response caused by supply or demand components. Our empirical results related to the negative responsiveness of Russian NWF to oil risk shock are explained by financial market volatility. We confirm with Das and Kannadhasan (2020) and Malik and Hammoudeh (2007) that risk shocks relate negatively to emerging market sector indices and oil-exporting country stock markets. Thus, financial market turmoil directly affects the economy in general; consequently, the NWF’s funds are channelled into equity investments in domestic companies.

“Russia has built up a large ‘shadow fleet’, which are tankers with opaque ownership and no Western ties in terms of finance or insurance. In addition, Russia has found plenty of non-Western oil buyers at discount prices China, and India most notably,” Yagoub told Al Jazeera.

“Last month, the majority of Russian Urals were sold above $60. But, Western countries have been clamping down,” Yagoub added, pointing to a reported information request from the US Treasury to shipping companies suspected of violating the cap.

The economic literature has typically assumed that fossil fuel prices will be negatively affected by climate policies (see e.g., Nordhaus and Boyer, 2000, Hassler and Krusell, 2012, van der Ploeg and Rezai, 2020). For example, the International Energy Agency (2022) estimates that prices will decline as fossil fuel consumption falls by 60 percent until 2050 in a net-zero emissions scenario. The implicit assumption is that the energy transition is driven by a series of negative fossil-fuel demand shocks. Subsidies to electric cars, for instance, cause negative crude-oil specific demand shocks, as oil is substituted with electricity, leading to lower prices.

This paper shows that a declining global fossil fuel production path can also arise from curbing fossil fuel production (i.e., from negative supply shocks), leading to increasing oil prices over the long term. This is in line with theoretical models by Hoel (1994) and Harstad (2012), where oil prices can increase in the face of supply-side climate policies. For example, climate regulation may directly restrict oil production while public preferences may shift in favor of sustainable investment—thereby, increasing the cost of capital for fossil fuels companies and, eventually, lowering oil supply (Delis et al., 2019, Ehlers et al., 2022, Seltzer et al., 2022). Higher policy uncertainty could also lead to a decline in fossil fuel investment (Bogmans et al., 2023). Importantly, as policies are mostly formulated at the country level and the mix between demand side and supply side policies is hard to predict at the global level, the energy transition raises uncertainty about the price outlook.

According to the results of the study, there are interconnected relationships and influences between economic policy uncertainty, environmentally friendly stocks, and petroleum prices in the United States. There is a higher spillover effect from green stocks on oil prices than from oil prices on green stocks. Uncertainty causes more shocks to the stock performance of green stock companies. The influence of fluctuations in oil prices on the level of uncertainty in economic policy carries greater weight than the impact of economic policy uncertainty on the price of oil. When considering external economic factors such as Brent oil prices and uncertainty in global economic policies, the interconnectivity of the system becomes more profound. US oil price-green stock connectedness can also be explained by other economic variables that are outside the economic sphere of the US. Research has discovered that the existence of uncertainty in economic policies intensifies the correlation between the values of green stocks and oil prices, irrespective of the inclusion of Brent crude prices and worldwide economic policy uncertainty. To put it differently, Increased uncertainty in economic policies serves to exacerbate the connection between the two markets.

The situation in 2020 by itself does not represent a radical overturn in the oil and gas market, but it signifies major adjustments of the market landscape in the coming years. The key factor is the excess supply of oil and gas against the background of reduced demand in the presence of commissioned but idling production capacity. This situation generates significant risks of price volatility and necessitates the need for stabilization mechanisms. In such conditions, the preferences of investors are changing, as they become increasingly wary of investing in conventional oil and gas projects with long payback periods. In the global paradigm of the oil and gas market, this means that historical consumption peaks will occur at lower levels than predicted before the COVID-19 pandemic.

In the context of electric transport spread, it is of great interest to assess the impact of these processes on oil demand. One should understand that the global need for mobility is constantly increasing. Even with a relatively modest growth rate of 2.8% in global GDP, the growth of the global fleet will require about 1.5 billion tons of additional energy by 2040. Part of this increase (about 0.6 billion toe) can be compensated for by 2040 by increasing the energy efficiency of conventional vehicles (reducing fuel consumption in the global fleet as a whole). Another 0.27 billion toe will be cut by the transition to alternative fuels. This roughly corresponds to the development of energy in the framework of “business-as-usual” scenarios while maintaining existing approaches. However, the tightening of policy in terms of emissions, energy efficiency and support for the transition of transport to alternative fuels can lead to a peak in oil consumption already by 2025–2030 and by 2040, the demand for oil can be significantly below 2019 levels.

6.3. First best: Immediate implementation of carbon tax to keep global warming below 2°C

To limit global warming and curb demand for fossil fuel, the government can impose a carbon tax which limits cumulative emissions to 300 GtC. Cost-efficient policy immediately implements a carbon tax of $180 per tC ($ 49 per tCO2) which grows exponentially at a rate equal to the market rate of interest (4% per year) until fossil fuel is priced out of the market in 50 years’ time. 20 After the end of the fossil era only a maintenance tax is required which moves in tandem with the cost for renewable and fossil energy, maintaining a wedge such that fossil fuel remains uncompetitive despite any occasional discoveries in oil and gas reserves which might occur in the future. This forceful pricing of carbon shifts downward the demand for fossil fuel and the extraction trajectory in Figure 2 (green, long-dashed). As a result, investment in exploration capital grinds to a halt, lowering the stock of exploration capital and the rate of new discoveries. Once the oil and gas companies have adjusted to the new policy environment, exploration investment briefly resumes to provide new discoveries which keep extraction costs at optimally low levels. This plateauing of discoveries at 4 GtC per year only last a brief period as the carbon budget is nearly used up and, anticipating the end of its business, the oil and gas companies slowly wind down capital and reserves before they finally close shop. A total of 170 GtC and $1.3 trillion of natural and physical assets are abandoned (stranded assets effect 1 and 2). Carbon pricing and its intended consequence of lower cumulative use immediately bite into the scarcity rent on existing reserves (which falls by 22 percent to $192). This drop of $53 per tC is more than compensated by the carbon tax of $180 per tC and demand falls. The current value of oil and gas companies drops by $7 trillion or 25% to $22 trillion under the first-best carbon tax (stranded asset effect 3).