Short-Lived Insurrection in Russia Has Limited Oil Price Pressure
Typically, such events have immediately resulted in significant upward pressure on oil prices, even when the flow of oil supplies has not been immediately affected.
In a recent oil market update, Jorge Leon, Senior Vice President at Rystad Energy, sheds light on the internal military struggle in Russia and its potential impact on global oil prices.
The situation unfolded on June 24 when the paramilitary organization Wagner Group initiated an armed insurrection within Russian borders. However, within hours, the group announced the abandonment of their insurrection, bringing an end to what could have been the first coup attempt in Russia in three decades.
Historically, geopolitical events in major oil-producing nations have triggered significant increases in oil prices, with an average surge of 8% observed in the five days following such events.
A Geopolitical Challenge?
However, given the short-lived nature of the recent incident in Russia, experts do not anticipate a substantial rise in oil prices in the coming week. Nevertheless, the internal instability within Russia has heightened geopolitical risks, which could lead to a marginal uptick in oil prices if the situation does not deteriorate further.
Reports indicate that convoys of Wagner troops crossed into Russian territory from Ukraine, seizing military facilities in cities like Rostov-on-Don and Voronezh before advancing towards Moscow.
Responding to the events, Russian President Vladimir Putin addressed the nation, categorizing the situation as an insurgency and assuring citizens that it would be swiftly controlled by authorities. Shortly afterward, Yevgeny Prigozhin, the leader of the Wagner Group, announced the group's withdrawal from their insurrection against the Russian armed forces, marking the end of a potential coup attempt.
The Oil Revenue
While uncertainties remain regarding the future course of events, this brief insurrection has exposed internal instability within Russia's political and military systems. Geopolitical uncertainties in major oil-producing nations have been witnessed over the past few decades, ranging from civil unrest to coup attempts, armed conflicts, and changes in governments.
Typically, such events have immediately resulted in significant upward pressure on oil prices, even when the flow of oil supplies has not been immediately affected.
Over the past 35 years, geopolitical events in major oil-producing nations, including the 1990 invasion of Kuwait by Iraq, the Gulf War, coups in Algeria and Venezuela in 1992, the 2002 US invasion of Iraq, civil wars in Libya in 2011 and 2014, the 2019 drone attack in Saudi Arabia, and the outbreak of war between Russia and Ukraine in early 2022, have caused an average 8% increase in oil prices within five days of the triggering event.
As the situation in Russia unfolds, the global oil market will closely monitor developments, recognizing the potential for increased geopolitical risks and their impact on oil prices.
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