Geopolitical tensions and price phenomenon… Russia's invasion of Ukraine has caused oil prices to rise in recent weeks. While European gas prices were breaking records, it would not be wrong to say that rather than a price increase that can occur under normal conditions, a supply deficit has given birth to the phenomenon of the global crisis. In an environment of extreme geopolitical tension, global deficit risks remain high. 

Brent oil, natural gas and palladium price comparison… Source: Bloomberg

 Energy and raw material crisis… The risk of a global energy crisis due to the increase in energy prices and coercive sanctions in the Russia-Ukraine tension concerns not only Russia but also the countries benefiting from Russia's energy. New embargoes came from the USA and England to Russia. The US and UK banned the import of Russian crude oil and petroleum products. Europe, on the other hand, did not participate in this sanction phenomenon and stays away from sanctions that directly target energy, asking Russia to continue the shipment within the framework of Nord Stream 1. In this case, the nuclear agreement between the USA and Iran is of great importance. In addition, negotiations are on the agenda for the Saudi Arabian side to increase its oil supply.

If a high proportion of imports is concentrated among a relatively small number of external partners, the stability of the EU's energy supply may be threatened. Almost two-thirds (27%) of non-EU crude oil imports in 2019, almost three-quarters of natural gas imports from Russia (41%). The dependency ratio shows the extent to which an economy relies on imports to meet its energy needs. In the EU, this rate is 61% according to 2019 figures, which means that more than half of the EU's energy needs are met by net imports. The EU is heavily dependent on Russia in imports of crude oil, natural gas and solid fuels.

 

EU natural gas imports by country (%)… Source: Eurostat

 

After the embargoes came retaliation from Russia. Russia banned the export and import of certain products and raw materials. Since this event also affects fertilizers and chemicals, there is a situation where similar price and supply risks can be mentioned in food, especially grain products. Also, banning palladium exports could pose a problem for the United States. Because the US was importing most of the palladium from Russia.

 Conclusion? Not just oil prices, but the price of every commodity is rising. Domestic demand and pricing mechanics of many countries also make it difficult to cope with inflation. The escape risks arising from the phenomenon of war are effective on the new concept. Many dynamics will be determined by the duration, scope and impact of the crisis. In the case of peace, the dynamics will recover, and in adverse effects, the probability of being exposed to more effects will increase.

Kaynak: Tera Yatırım
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