Russia conflict could create ‘the largest energy supply disruption in the history of energy markets’
Dr. Pierre Noël, Global Research Scholar at Columbia University's Center on Global Energy Policy, joins Yahoo Finance Live to discuss the energy and oil market amid the Russia-Ukraine crisis.
Video Transcript
- We continue to see energy prices buffeted by headlines out of Ukraine and Russia, particularly acute perhaps when it comes to natural gas, because Russia is an important supplier to the rest of Europe, of course. It's an important crude oil supplier, as well, so what are the implications of this brewing conflict for the energy markets? Dr. Pierre Noel is a Global Research scholar at Columbia University's Center on Global Energy Policy, and he joins us now. So, Pierre, as we watch all of these competing headlines, what do people need to keep in mind about the significance of Russia as a supplier to the rest of Europe?
PIERRE NOEL: Thank you, Julie. They need to keep in mind, perhaps, one number, which is that the flows of Russian gas to the European Union are worth about a third of global LNG trade, right? So if we were to lose, if we were to have a disruption of the total supplies of Russian gas to Europe, you would have a massive transfer to the LNG market, which would trigger a global energy price spike. So you're talking about potentially the largest energy supply disruption in the history of energy markets.
- Frame this for us a bit. When you say crisis, you know, a lot of the numbers we've been hearing as the situation has unfolded is $150 barrel, at least, from the oil markets. Is that-- would that be high enough?
PIERRE NOEL: So this fight would start, of course, from the gas market. It would migrate to the oil market via [INAUDIBLE] substitution in Europe and in Asia as the market looks for any molecules of natural gas that can be shipped to Europe. So people in Asia would shift to oil if they can to free up some LNG, some natural gas for Europe. And in Europe, of course, any oil that can be substituted for natural gas would be, so that would be supportive of the oil price. However, the macroeconomic implications of the crisis would, of course, go the other direction and would put pressure, downward pressure on the oil price via inflation and lower economic growth.
- At this point, it looks like there could be sanctions imposed on Russia, right? So it seems as though it might not be Russia cutting off the flows. It would be potentially the West that is sanctioning Russia, which would result in cutting off flows. Is that correct?
PIERRE NOEL: Yes, and this is something that is not widely discussed and is actually overlooked completely, I think. You know, Russia has never mentioned ever since the start of this tensions. Russia has never mentioned or let alone threatened to cut off Europe.
We've had, on the other hand, a lot of talks from the US and its closest allies pointing towards financial sanctions that would be so wide ranging, so disruptive of the Russian financial system that, perhaps, European buyers of Russian gas would no longer be able to pay for it. So you're contemplating a situation, where it's not Russia that would cut off Europe. It's actually Europe that would stop buying Russian gas, including to comply with US imposed financial sanctions, which I think would be unprecedented, indeed, and probably conducive to significant political tensions within the West as well.
- So, Pierre, I'm going to put you in an unfair position then and ask you how likely you think all of this is. And I say unfair, because, I mean, who can tell, at this point, what the outcome is going to be? But from where you sit, what do you think is most likely?
PIERRE NOEL: Totally unfair to you, Julie, indeed. No, I'm not going to pretend that I have insight that I actually do not have. What is clear to me is that, even if there is no full-scale war, at this time, we have entered a new era.
The post-Cold War era is over. Russia has, indeed, launched a campaign, which will not abate a campaign to obtain new security arrangements in Europe that would accommodate their so-called red lines. The West, and the US, and European powers will have to decide whether they are prepared to negotiate over those red lines with Russia or whether they prefer to enter into a state of permanent confrontation with Russia. If they choose the latter, this is bad news for Europe, bad news for Russia, but this is extremely bad news for Ukraine, which will be unable to go back to economic growth and will drift into a state of increasing political instability and ungoverned ability.
The energy implications is that, if we move into a period of permanent confrontation with Russia, there is no way that the Russia Europe gas relationship can move back to stability. Nord Stream 2 will probably not come online. The Ukrainian transit will be under permanent threat of being disrupted by a new military crisis in Eastern Ukraine, and therefore, this is bad news for natural gas. This is bad news for Europe's climate policy, as well, because gas makes it cheaper and easier to reduce carbon emissions. And this is, basically, a lose-lose situation for everyone.
- Well, hopefully, the prospects of that will be enough to avoid all of it, but we shall see. Dr. Pierre Noel, Global Research scholar at Columbia University's Center on Global Energy Policy, thank you so much for joining us. Appreciate it.
