The main objective of this report is to research and analyze the effects that the war of Russia and Ukraine had on the crude oil that surges over $100 a barrel. The topic of the Ukraine Russian War and its effect on the economy and on livelihood has been analyzed in this report. This war is taking the lives of so many innocents. This issue is presently the highest leading topic that has been discussed across the world and it is also the updated cause of so many economic and social changes. A brief analysis of this problem and its effect on the economy for crude oil was selected as an occurrence of this competence that had a drastic effect on the economy. It can also be stated that almost every individual living in Russia and Ukraine is facing the worst side of War. The questions that have been discussed in this report are – 1) “Why does the price (or quantity) in particular goods or service market change.” 2) “What is the government intervention in the market and what does it mean its objective? Or who is benefited from this? Who hurts?
Why is the war resulting in the increasing prices of global crude oil?
The prices of crude oil are increasing even at the making of Vladimir Putin’s (the President of Russia) special military functioning in Ukraine (Soviet-era constituent). It has also been backed up externally by the military alliance of the United States which is known as the North Atlantic Treaty Organization. All this happens because the citizens across the world started fearing that the war would result from the West portion to prohibit the Russian oil (Cellmer, Cichulska, and Be?ej, 2021). Moreover, the United States and the United Kingdom prohibited the import of Russian oil and of gasoline; still, there were some countries that put a stoppage on their purchases. Where is there were some countries that were still buying? On the 7th of March, the price of oil wing its way that was around $140 a barrel, which was a new record in 14 years. Prices of oil are coming down but at very slow rates.
What is the fact behind why Russian fuel is matters today?
Actually, the main reason why the Russian fuel is important is that Russia is referred to as the world’s third-largest producer of oil leaving behind Saudi Arabia and the United States. It is supplying almost 14% of the worldwide production of crude oil to the market across the world which is equal to 8 million barrels in a single day (Sharif, Aloui, and Yarovaya, 2020). The major reason that may the crisis deepened down because of the prohibition made by the United Kingdom and the United States (Sadikin, Turan, and Chegut, 2021). There were also some pro-Ukraine countries that took the decision not to purchase Russian fuel, which further resulted in an increase in crisis. The supply of crude oil was already getting very tight.
Slowdown of the economy
Mostly the trade of crude oil takes place in the terms of US dollars. This only refers that more dollars need to be spent from the reserves of foreign exchange on oil. This further results in fewer dollars being available for the import of several other products and services needed by other countries. When an individual needs to spend more dollars on petrol or diesel, then he/she will spend fewer dollars on the other products and services that are of actual requirement. This will further result in inflation which will make the demand for products and services slow down. For example, manufacturing, importing, and construction (Callado, and Leitão, 2018). Various companies will now recruit fewer workers which will result in the overall economy taking a hit. This hit also affected those economic indicators which were getting improved after the Covid-19 pandemic. Moreover, there are various interlinked sections of this Russia’s invasion of Ukraine. This is also a very complex and tough web of several factors where the point of conflict and effect is still not clear. The prices of crude oil in the United States have also been increased since the last few months just because of Russia’s seizure of Ukraine.
The war had a greater impact on the crude oil prices of Russia invading Ukraine. At present, the exporters of energy are not subjected to any sort of penalty on Russia. Europe is also looking for some alternatives. There are reports that suggest that refiners must avoid taking supplies of Russian oil. Meanwhile, Russia is still capable to maintain a majority in the market by offering several discounts at the order of $20. There is no doubt that this war is increasing the pressure on the government and on the economy. THE OECD countries are able to release 60 million barrels of crude oil which is equal to the consumption which will last for 12 days of the Russian exporters (Al-Masum, and Lee, 2019). The aim behind this is to slow down the overall pressure of crude oil. Also, this is hard to interpret what negative impact it will create on the market and on the consumer. Russia is considered the world’s second-largest producer of crude oil that comes after Saudi Arabia. It also supplies almost the third part of Europe’s necessities. The cost price of the brand crude oil rises by more than one-fifth which created a fear of lessening in Russian supplies (Nalurita, 2019). James Spencer, the owner of Portland Fuel, states that individual car drivers will have an option to cut down their utilization of cars by driving less. The conflict between Russia and Ukraine continues to have a greater impact on the share market. In Germany and France, the stock exchanges are dropping down.
Why does the price in a particular good or service market change?
Supply and demand curve
In the conflict of Russia and Ukraine regarding crude oil, the law of supply and demand is affecting the prices. It is a basic and fundamental economic principle that states that when the supply of a particular product will exceed the demand for that particular product, then it will automatically make the cost price fall down (Wang, 2021). In the simplest terms, when the demand will exceed the supply, the price will tend to increase. Moreover, they have been an inverse relationship between the price and supply of products and services at a time when demand remains unchanged. This price of the share is changing because of the supply and demand of crude oil in Russia and Ukraine. When more people want to purchase crude oil, then it will automatically result in higher prices of crude oil.
What is the government intervention in the market and what does it mean its objectives? Who benefits? Who hurts?
Government intervention in the market is the involvement of the government in the marketplace (Chegut, and Langen, 2019). Its objective is to transform the decisions that are made by individuals or any organizations regarding economic and social matters in order to influence the outcome of a free market. Prices of oil had a direct impact on the domestic oil sector and had to have jobs and benefits which are connected to the oil prices. Lower prices of oil will benefit most of the consumers by having cheaper gasoline.
Conclusion
In conclusion, Russia’s invasion into Ukraine shattered so many lives while the world is still facing the effects of Covid-19. The price of crude oil is increasing day by day. The increase in price of crude oil and other basic necessities is hurting so many lives that have a very tight budget. Additionally, the food prices are also increasing. Russia is also one of the major exporters of crude oil and palladium also. Higher inflation will also result in several shortages and increasing cost price of basic raw materials. Crude oil is one of the major components of gasoline. The conflict of Ukraine and Russia made the US oil prices at their highest level of $100 a barrel since 2008. As a result, government needs to involve in this matter in order to transform the decisions of those poor individuals who earn very low for a living. When more people will buy the crude oil, it will result in higher prices of oil.
References
Al-Masum, M.A. and Lee, C.L., 2019. Modelling housing prices and market fundamentals: evidence from the Sydney housing market. International Journal of Housing Markets and Analysis.
Callado, A.A.C. and Leitão, C.R.S., 2018. Dynamics of stock prices and market efficiency. International Business Research, 11(6), pp.29-40.
Cellmer, R., Cichulska, A.B. and Be?ej, M., 2021. The regional spatial diversity of housing prices and market activity–evidence from Poland. Acta Scientiarum Polonorum Administratio Locorum, 20(1).
Chegut, A. and Langen, M., 2019. The financial impacts of coworking: Rental prices and market dynamics in the commercial office market. Available at SSRN 3481142.
Nalurita, F., 2019. Impact of EPS on market prices and market ratio. Business and Entrepreneurial Review, 15(2), pp.111-130.
Sadikin, N., Turan, I. and Chegut, A., 2021. The Financial Impact of Healthy Buildings: Rental Prices and Market Dynamics in Commercial Office. MIT Center for Real Estate Research Paper, (21/04).
Sharif, A., Aloui, C. and Yarovaya, L., 2020. COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach. International Review of Financial Analysis, 70, p.101496.
Wang, X., 2021. The values and incentive effects of options on the maximum or the minimum of the stock prices and market index. The North American Journal of Economics and Finance, 55, p.101352.
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