The widening use of sanctions globally, including against Iran, Venezuela and Russia, can be destructive to global oil markets, posing risks to future oil supply security and potentially pushing oil prices to record highs, top oil market players said Friday.
Russia sees fair price at $60/b: Putin
Sanctions pose supply shortage risks: Novak
Geopolitical risk premium to price seen at $5-$8/b
While various forecasts point to a 30% growth in energy demand by 2040, the sanctions on energy projects in these countries will put at risk the security of energy supply, Russian energy minister Alexander Novak said at the St. Petersburg International Economic Forum.
"We all need to think of how to satisfy demand in the next 20 years," Novak said. "But will there be enough energy sources for the growing global needs [if sanctioned reserves are not developed]? I think everyone should pay attention to that."
The CEO of Russian top oil producer Rosneft, Igor Sechin, estimated the US sanctions against Iran, Venezuela and Russia, either already in place or under consideration, could result in new oil prices records in the near future as they are targeting a third of combined global crude reserves.
"This is a sort of a negative global record, that has never happened previously," Sechin said.
"The policy of sanctions and ultimatums in respect of hydrocarbons markets cannot help but establish a 'sanctions premium' to the price," he said. "I don't rule out that quite soon we'll be able to talk about a sanctions commodity super-cycle and we'll see new price records shortly."
Oil prices have reached their highest since November 2014, with Brent crude breaching the $80/b level recently as supply risks related to Venezuela and Iran have buoyed the market.
Sanctions also limit international companies' opportunities, said Patrick Pouyanne, CEO of France's Total. The oil major earlier said it may exit from the deal on Iranian South Pars oil and gas field in the face of US sanctions, unless it gets a waiver.
"It's a huge global challenge," he said. "Our role is to build bridges by new projects."
Shell CEO Ben van Buerden said his company "simply cannot go into places with sanctions in place," adding "it's not as if we really need to go into countries with a lot of problems to keep ourselves going."
CURRENT PRICE RISKS
The key oil producers suggested that while high oil prices are more positive, they risk limiting oil demand and economic growth leading to greater volatility.
Russia is comfortable with the oil price at around $60/b and is not interested in ever rising oil prices, Russia President Vladimir Putin said on the sidelines of the forum, as reported by Prime news agency.
"This level of price is sufficient to allow making forecasts on investments needed and implement them. Everything above [this price] may cause certain problems for consumers, and key producers are not interested in this," Putin was quoted as saying.
Current prices do not look stable, said Novak, who earlier estimated geopolitical tensions, including potential re-imposition of sanctions against Iran, have added $5-7/b to the oil price.
This estimate was mainly supported by Daniel Yergin, a highly respected industry expert. "It would seem that somewhere between $5/b and 8/b reflects the anxiety in the market," he said, speaking during the same session.
BP CEO Bob Dudley agreed that prices "seem pretty high to me now" due to "a lot of uncertainty right now."
Saudi energy minister Khalid al-Falih welcomed the impact of US shale oil production growth while the market struggles to fight these price risks.
"Thank God for US shale, because if you look at the numbers, without it, I think we would be looking at 3-digit prices," he said.
COOPERATION CALL
Russia and France's leaders, also criticized unilateral use of sanctions, calling for greater trust and cooperation globally.
Putin slammed sanctions as unprecedented protectionism, noting that they can stall economic growth globally. He warned such practice by centers of power "presents risks of the most negative if not destructive consequences."
"This is hurting an increasing number of companies, which were certain they would not fall subject to this trade regime, that problems of this sort will not affect them," he said.
French President Emmanuel Macron echoed Putin's call to "act together".
"In order to fight mistrust, we need to devise the conditions of a multilateral approach and fully fledged integration. For sovereignty and for respect. I want no interference in any form," he said at the same session as Putin.
International Monetary Fund Managing Director Christine Lagarde also said sanctions hamper trade and economic development overall, including those imposing them.
"It is a great mistake to resort to protectionism and to unilateralism. This would be a self-inflicted wound," she said. "Nobody, nobody wins a trade war."
