The implications of volatility in global oil markets

With oil prices surging in the wake of supply fears combined with events in the Arabic world, Business RT spoke with Konstantin Simonov from Russia's Energy Security Foundation.

­RT:  At what sort of oil price would you consider the world is heading for an oil shock?

KS:  I think it is only the beginning of the story, and the situation in the North part of Africa is not the end of this, as you said, revolutionary spirit.  And the question is not only the situation inside, for example, Saudi Arabia, because I can’t imagine that there would  be a revolution in Saudi Arabia.  But if there will be the change of political regime in nearest countries so the next question will be what will be the situation with the main transportation routes.  It will be possible to export oil by tankers from Saudi Arabia to other European countries, so the situation in Egypt, the situation now in Tripoli with Gaddafi is only the beginning of the story.  Next it will be the revolution in Algeria, the situation in maybe not Saudi Arabia, but the nearest countries.  So that is why, in my opinion, it is only the beginning of the big collapse in these Arabian countries.  That is why I think that $150, it will be the price of oil, I think, during next week, but it will be not the end.  Not the end because we can remember the situation in the ’73 – so called the second oil crisis – so the situation in 1973 was only the beginning when there was an embargo.  There was only the beginning of the increasing of oil prices, and the increasing of oil prices was extremely high, but it was some trend, it was not during several days. So I think the price – $200/bbl or maybe more is not a pessimistic forecast.   

RT:  Do you think we'll reach that price for a sustained length of time?

KS:  It is very difficult to predict the behaviour of the stock exchange, but I think we can understand now a very simple thing – we spoke about it and we said about it several years ago.  That I cannot say what will be the price exactly, or what will be the price of oil for example, next Wednesday or in 2012, but I am absolutely sure that oil will never be a cheap commodity – so oil will be expensive.  We can now speak about the level of price.  We can speak about what will be with oil next week or one year later, but I am absolutely sure that oil will never be a cheap commodity.  It’s the main reason and the main impact of these revolutions.

RT:  What does this mean for Russia? It is good for energy shares, but what about the economy as a whole?

KS:  If we are speaking about the Russian economy today, of course it’s good news. It’s good news why?  Because first of all, as we said already, it will be the serious increasing of oil prices, and you know that it’s a serious conversation inside Russia.  It is good news for Russia – higher prices on oil – or it’s bad news for Russia?  But my position is simple – high oil prices are good for Russian economy because it is 50% of our GDP, and so that is why, from this point of view it’s a good news, and one more detail – that now we will see the increasing of the role of Russia as sustainable energy supplier to Europe.  Of course, if we are speaking about – I don’t know – two or three years, there can be not an economic problem, there can be a political problem, because if it will be the beginning of the very serious world political crisis, I don’t know what will be the result of this story for Russia.