‘Every Barrel Matters in This Market’

By Helima Croft
Published July 11, 2022 | 2 min read

As policymakers respond to the energy crisis, what impacts will a prolonged Russia-Ukraine war have on global markets and governments’ options to alleviate the crisis?

Policymakers around the world are scrambling to respond to the energy crisis triggered by Russia’s invasion of Ukraine. What will be the impact if the war extends into 2023 and what options remain to alleviate the crisis?

Helima Croft, Head of Global Commodity Strategy and Middle East and North Africa (MENA) Research at RBC Capital Markets, offers her perspective in a conversation with Aaron David Miller, senior fellow at the Carnegie Endowment for International Peace.

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Keep the supply flowing

OPEC+ has been slowly returning the 9.7 million barrels per day it agreed to pull from the global oil market at the start of the Covid-19 pandemic. In both July and August, it is raising output by 648,000 barrels per day.

Croft notes the recent stepping up of the OPEC+ countries’ additional planned production. She questions what the group will do with its remaining spare capacity given the very limited number of barrels available as well as the uncertainty about the trajectory of Russian exports and other supply wildcards such as Libya and Iran. Noting the calls from France to boost supply by allowing Iran and Venezuela to resume oil trading, she says: “I think every barrel matters in this market.”

Shipping sanctions vs. price caps

Croft breaks down the tough choices facing policymakers beyond 2022, with sanctions set to halt seaborne imports of Russian oil products to Europe from January.

India continues to buy heavily discounted Russian oil, but European sanctions on shipping and insurance could curb those cargos. The prospect of those barrels being removed from the market “is making policymakers in Washington very nervous”, she observes.

A price cap on Russian oil is seen as an alternative. It offers potential to reduce Russian revenue while allowing vessels to reach Asian markets. “Everyone agrees in principle, but the mechanics are challenging. Who sets it? Who enforces it?”

"Unfortunately, this oil market is going to have to be balanced by demand – it’s going to be consumption changes that bring down prices"

- Helima Croft, Head of Global Commodity Strategy and MENA Research, RBC Capital Markets

Time to talk about consumption

Looking at the bigger picture, Croft notes that while U.S. consumers face soaring gas prices, Europe is threatened by economic crisis. The U.S. has yet to emulate European leaders in starting frank conversations about a need to curb oil and gas consumption.

“Unfortunately, this oil market is going to have to be balanced by demand – it’s going to be consumption changes that bring down prices,” she says. “Political cycles do not make it easy to have that kind of conversation.”

Croft also voices concern about maintaining a balance between energy security and support for the transition to clean energy: “I worry about keeping the public onside for these necessary and important energy transition policies.”

With existing supplies being squeezed and a shortage of refinery capacity in the U.S. and elsewhere, the energy crisis is unlikely to be resolved any time soon.

Helima Croft

Helima Croft
Head of Global Commodity Strategy and MENA Research
RBC Capital Markets

CommoditiesEnergyGeopoliticsOPECOil & GasRussian-Ukraine