Oil reacts to the Israeli-Palestinian conflict: $100 in the coming weeks

The expert told what will happen to fuel prices and the ruble

The conflict in the Middle East could lead to higher fuel prices. If aggravations around Palestine usually have little effect on quotes, then this time everything may be different – the market is seriously afraid of the Iranian factor. Meanwhile, rising oil prices are positive for the Russian ruble and the budget. If the confrontation becomes protracted and affects states neighboring Israel, this could cause a stable rise in oil prices up to $100 over the coming weeks, says Ivan Samoilenko, managing partner of the communications agency B&C Agency. However, according to the expert, it’s still not worth expecting the ruble to strengthen below 100 per dollar.

– How will the war in Israel affect the oil market?

– Any fighting in the Middle East usually leads to an increase in oil prices, as the threat of production cuts in this oil-bearing region increases. In this situation, international agencies predict an increase in the cost of raw materials to $100 per barrel; if, as a result of the escalation of the conflict, neighboring countries are drawn into it, this will also hit the interests of Saudi Arabia. This weekend, the cost of a barrel of oil immediately rose by 3% and amounted to $88 per barrel on Monday (on Friday, Brent crude oil cost $85). The market is now awaiting developments and, if the conflict becomes protracted and affects states neighboring Israel, this could cause a stable rise in prices up to $100 over the coming weeks.

– Western analysts draw parallels with the events of 50 years ago, when global changes took place in the oil market. Evaluate these prospects.

– The Yom Kippur War, as the events of 50 years ago are called in Israel, had a strong impact on the oil market. But then other states were drawn into the conflict – Egypt and Syria, which opposed Israel. As a result, many Arab countries reduced oil production – this was a kind of response to support for Israel from the United States and European countries. And this step came as a real shock to the commodity market, because oil tripled in price – from $20 to $60 per barrel by the end of 1973. Now it is hardly worth predicting the same consequences for the market – it is already subject to blows from demand, and manufacturers are trying to maintain price stability. The near future will show how events will develop.

– From an economic point of view, can the current situation benefit the Russian oil market? If the price rises to $100-150, will budget revenues increase?

– Russian oil has never been sold at the cost of a barrel of Brent, our Urals has a discount to the standard grade. For our raw materials, sanctions, a review of the buyer pool, transportation costs, etc. are of greater importance. Even despite sanctions pressure, our raw materials are now sold above the “price ceiling” of $60 per barrel. But payments with partners are predominantly made in national currencies, which means that even with an increase in revenue for raw materials, the budget deficit will remain. Do not forget that oil sales are not everything for the budget. There is the problem of imports, which are rising in price due to changes in logistics as a result of sanctions, there is an increase in costs due to sanctions, etc. With an increase in the price of oil on the world market, the budget will receive more money, but this will not solve the problem of deficit, since there are a lot of reasons for it.

– If excess petrodollars flow to us, will this affect the stability of the ruble?

– There will be no excess petrodollars. The budget rule has been changed: if previously all petrodollars over $42 per barrel went to the National Welfare Fund, now everything over $60 will be called “surplus”. That is, what previously went into reserves will now be spent. And the budget for the next three years, which was read in the State Duma, was formed with a deficit, some of the items were sequestered. And the rise in the cost of raw materials on the world market itself may turn out to be short-lived. For the Russian currency, the volume of capital outflow from the Russian Federation, the problem of rising import costs with a reduction in exports, as well as the budget deficit (it needs to be compensated for, for this a weak ruble is one of the tools) are of much greater importance. So you shouldn’t expect the ruble to strengthen below 100 per dollar. It is possible that the price of the dollar will decrease to the level of 95-97 rubles per unit, but for a short time. Since fundamental factors indicate a continued weakening of the national currency in the near future.