How will the rise in Brent Crude oil impact the world?

Brent crude futures is moving up after Russian President Vladimir Putin issued a warning against Ukraine and authorised special military in Ukraine’s Donbass region. Currently, Brent crude is inching towards the US$100 mark.

On 24 February 2022, Russia announced a military operation in Ukraine. President Vladimir Putin asked the military of its western neighbour to lay down its arms. Post this announcement, there were explosions in Ukraine’s capital.

Russia is the second-largest oil producer in the world. The country sells crude oil to European countries. It is also the largest supplier of natural gas to Europe. The country provides around 35% of its supply.

Brent is considered as the marker grades of oil. The price of Brent oil determines the dynamics of most oil world prices. Such oil is derived from the region of Shetland Island, which is owned by the UK. Brent oil is not from any particular well but a blend of oil produced in the region.

The North Sea Brent Crude is considered the benchmark for oil prices worldwide. It is described as light and sweet because it has a low density and low sulfur content. Brent oil is preferred in refining oil to produce gasoline, diesel, and various other products.

Brent oil is also used for pricing around 66% of the world’s traded crude oil supplies. Thus, making the index amongst the most significant oil benchmarks.

Other than Brent Crude oil, the older widely used benchmark is West Texas Intermediate. OPEC or the Organization of Petroleum Exporting Countries considers Brent Crude as its price benchmark. OPEC includes 14 countries that produces oil and are largely involved in setting prices of oil.

Russia is one of the members of non-OPEC countries and it exports oil. Other non-OPEC countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, South Sudan, and Sudan. Russia along with other non-OPEC members are the alliance of the crude producers and they have been undertaking correction in supply in the oil market since 2017.

Increase in Brent oil would have an impact at different levels on different economies. Below are some of the possible outcomes of this war between Russia and Ukraine.

• Global oil and Liquified natural gas prices would go up. It could have a negative impact for net energy importers.
• We may also see trade impacts from the import diversion and diversification.
• Supply chain bottlenecks may get intensified. As a result we may see inflation pressure in the region.
• The rise in the oil prices will increase the prices of the FMCG products. From packaging of products through machines till supply of the product till end-users requires oil.
• Not only will the consumer sector be impacted, other sectors will also be hurt because of the rise in the oil prices. Some of these sectors include consumer discretionary, aviation etc.

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