Rising gasoline prices at the heart of runaway inflation

A climate catastrophe seems in the making. And mitigating the impact of the Ukraine crisis won’t be easy

Rashid Husain SyedThe Paris-based International Energy Agency is widely viewed with respect, its analyses providing a better understanding of the direction of energy markets and the issues impacting the industry.

IEA is the energy watchdog of the Organization for Economic Co-operation and Development (OECD), founded by the likes of Henry Kissinger in the immediate aftermath of the Arab oil embargo in 1973.

The agency is headed by my wonderful friend, Fatih Birol, a thorough professional and a gentleman, undoubtedly the guru of the energy world. I respect him a great deal.

However, the agency also has a political role and we shouldn’t ignore the board’s policies. And once in a blue moon, one likes to tweak their analysis.

The energy world is in chaos. Supply and demand issues are in the headlines. Gasoline prices are reaching new heights, passing the psychological barrier of $2 a litre in parts of Canada. This is unprecedented and has led to worldwide inflation. Commodity prices have gone up and are hurting the average person. Budgets are going out of the window.

And there’s no end in sight. While the global energy demand-and-supply balance was already tight post-COVID-19, the crisis in Ukraine has exacerbated the problem. Efforts to put Russian President Vladimir Putin on the mat by squeezing the flow of petrodollars to Moscow have resulted in the removal of at least a million barrels per day (bpd) of Russian crude from the markets. While the world needs energy, the supply is getting tighter.

As the panic button is pushed all around the globe, IEA continues to insist that the world should ultimately be able to weather the crisis. The world won’t be left short of oil even with lower output from sanctions-hit Russia, Birol said on Thursday.

That’s easier said than done.

Birol was building on the story presented in the IEA’s Monthly Oil Report (MOR). The report cut IEA predictions of supply losses from Russia, the world’s No. 2 exporter, for the second straight month.

IEA now forecasts that one million bpd of Russian oil was lost in April, compared to 1.5 million bpd predicted last month and three million forecasted for March.

Production ramping up elsewhere and slower demand growth due to China’s lockdowns will forestall a big deficit, IEA emphasized. “Over time, steadily rising volumes from the Middle East, the OPEC+ and the U.S., along with a slowdown in demand growth, is expected to fend off an acute supply deficit amid a worsening Russian supply disruption,” the organization added.

So the world is looking at oil everywhere. A decade after NATO helped oust Muammar Gadhafi, the United States is close to getting Libya’s bitterly-divided political factions to unite – over oil.

Driven by the energy crunch induced by the Ukraine war, U.S. officials have dramatically increased their involvement in the North African country’s internal disputes. This comes after years of being largely absent in Libya, Taylor Luck wrote in the Christian Science Monitor.

Saudi Arabia and the United Arab Emirates, the two countries with the largest spare oil capacity, have avoided giving into Western demands to open their taps. But some West African producers are showing a significant uptick in shipments to Europe to meet rising demand, Bloomberg reported.

According to tanker-tracking data compiled by Bloomberg, average shipments of West African crude to Europe reached 1.23 million barrels a day in March and April, up 40 per cent from the same period last year and the highest level since February 2020.

But it’s not enough.

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Some major oil-producing countries are actually planning huge “carbon bomb” projects that would drive a climate catastrophe, the Guardian reported. It said nearly 200 such projects are in planning or have started pumping. Those projects will each result in at least one billion tonnes of carbon dioxide emissions over their lifetimes, equivalent to about 18 years of current global emissions.

Birol emphasized to the Guardian that nations must seek to replace Russian oil and gas in the near term without damaging long-term prospects.

Soaring global energy prices have led governments to seek new sources of fossil fuels. “I do understand why countries are reacting like this,” Birol said. “But there is the issue of the time horizon.” These projects may “take many years to start production.”

A climate catastrophe seems in the making. And mitigating the energy impact of the Ukraine crisis won’t be as straightforward as IEA wants to believe. The world is paying a high price and will continue to do so until the issue is resolved.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.


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