The Russian invasion of Ukraine led to economic sanctions and embargoes from many nations all over the world. Many corporations in countries that have not yet imposed any sanctions are feeling a strong reluctance to purchase Russian oil. (Related: Russian Deputy PM: Rejection of Russian oil would lead to catastrophic consequences for global market.)
All of these factors combined are contributing to the surge in global oil prices, which the IEA said will be felt the most by families with limited budgets. The surge in oil prices is also helping drive up inflation, which has already hit multi-decade highs and undercut economic recovery.
"The impact of loftier prices for oil and other commodities will … increase inflation, reduce household purchasing power and are likely to trigger policy reactions from central banks worldwide – with a strong negative impact on growth," the IEA reported. "Surging energy and commodity prices, along with financial and oil sanctions against Russia, are expected to depress world GDP and oil demand."
According to the IEA, the situation is about to get worse by April. Its report predicted the global oil market losing nearly three million barrels per day (bpd) of Russian oil exports – around 1.5 million barrels of crude oil and around one million barrels of refined products.
"The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock," continued the IEA, adding that this could lead to the "biggest supply crisis in decades." The IEA also predicted lower Russian domestic demand for oil products.
"These losses could deepen should bans or public censure accelerate," the organization added.
Russia is the world's third-largest producer of crude oil and refined products, behind the United States and Saudi Arabia. But it is the world's largest exporter of oil and products in the world.
In January, Russia produced 11.3 million barrels of crude oil and refined products daily, of which around seven to eight million were exported. Europe, in particular, is heavily reliant on Russian oil exports, and several countries in the European Union have been reluctant to place sanctions on Russian oil because of this.
For the second quarter of 2022, due to the crisis in Ukraine, the IEA predicts a global oil supply deficit of around 700,000 barrels per day (bpd).
The IEA forecasts demand for oil from the second to fourth quarters of 2022 to be around 1.3 million bpd. Growth in the production of oil is expected to be around 2.1 million bpd, a massive reduction from the IEA's previous forecast by about 950,000 bpd.
Analysts have pointed out that the best way to solve the global oil supply crisis is for peace to be struck between Russia and Ukraine, and sanctions and embargoes against Russia to be lifted afterward.
There are signs that a peace agreement could be reached within the next few weeks. Ukrainian President Volodymyr Zelenskyy recently announced that an agreement with Russia was beginning to "sound more realistic."
Russian Foreign Minister Sergey Lavrov also said during an interview that there was "some hope of reaching a compromise." In another interview, Lavrov said that Russia and Ukraine were close to agreeing in the peace negotiations. This announcement sent relief through global financial markets.
Some of the points both sides have already agreed upon include Ukraine renouncing its intention to join the North Atlantic Treaty Organization, promising not to host foreign military bases or weapons systems in the country and adopting the status of a neutral nation, with its territorial integrity and neutrality guaranteed by allies such as the U.S., the United Kingdom and Turkey.
Some sticking points remain, including the status of Crimea and the unrecognized separatist states in eastern Ukraine.
Once the peace agreement is finalized, it could begin the process of returning the global oil market back to its pre-war state, lowering oil prices and relieving overburdened consumers.
Learn more about the catastrophic consequences of sanctions on Russian oil at MarketCrash.news.
Watch this video from InfoWars and learn about how China and Saudi Arabia are preparing to purchase Russian oil despite the sanctions placed against it.