Economy

 

Russia is that the third largest producer of oil in the world and, a lot of importantly, the world’s largest exporter of oil and gas and the second largest exporter of oil after Kingdom of Saudi Arabia. So, disruption of provides because of the ongoing war and black sea blockage is bound to roil energy markets.

·        Impact Rise in import bill and current account deficit-leading depreciation of domestic currency.

·        Imported inflation and reversal of easy monetary policy Oil and natural gas as a universal intermediate enters in multiple ways into the costs of commodities, making oil price increases a driver of overall non core-inflation Stock and commodity market crash leading to large scale capital outflow.

·        Supply shortages leading to stagflation as it being the basic raw material to various industries and transportation services.

·        The policy trilemma refers to the trade-offs a government faces when deciding international monetary policy.

·        In particular, the policy trilemma contends that it is not possible to have all three objectives at the same time, but has to choose two from the following three options: Free movement of capital Independent (autonomous) monetary policy Fixed (managed) exchange rates

Why were oil prices rising even before the Ukraine crisis?

·        The main reason is global demand was already outstripping provide.

·        Reasons for low supply Russia has been holding back from providing additional supplies of natural gas to Europe.

·        As the price of gas shot up, so did the price of oil as consumers shifted from gas to oil and coal Continued underinvestment in oil and gas exploration because of the “public and the regulative aversion” to fossil fuels.

·        Theres very limited “spare capacity” inside the OPEC-Exporting (Organization of the Petroleum exporting Countries).

·        Russia’s share in global exports is around 12%.

·        “Russia provides close to five million barrels a day to the worldwide market which isnt an insignificant amount and a ban can immediately tighten the market further.

 

 

Why Venezuela cannot fill the gap?

·        Venezuela has the world’s largest oil reserves but producing oil requires more than just reserves.

·        The country’s oil-producing apparatus is in disrepair partially due to the government’s mismanagement however also because of harsh United States of America sanctions.

Oil-producing companies are in debt and most don’t even have good quality drilling equipment.