Russian Oil Supply Won't Surge Due to Peace – Temporarily
If the oil sanctions on Russia were to be lifted, there's a chance they might boost production, but it wouldn't be a quick fix. Ignoring OPEC+ targets isn't out of the question, but it's unlikely they'd ramp up production without additional investment, which would take some time to implement. Recent remarks from President Trump and Secretary of State Marco Rubio suggest relaxation of sanctions could be on the horizon, which could benefit the President in terms of diplomacy and inflation control.
OPEC+ production targets theoretically limit what Russia could produce, but the enforcement of sanctions is a more relevant issue here. Last month, the Biden Administration imposed additional sanctions on Russian oil tankers, driving prices up, but it's unclear how much impact this will have on production. The sanctions have only been partially effective, with Russia still managing to skirt around them.
The past five years show a fluctuation in Russian crude production, with a significant drop due to the Covid-19 pandemic, followed by a slow increase. However, the difference between OPEC+ targets and actual production indicates Russia's inability to meet its targets around the same period, which could suggest production has peaked or is in a plateau. But it's also possible that temporary obstacles and the war prevented a much-needed increase.
If sanctions on oil field services and equipment were lifted, that could help reverse the recent decline, but only with a delay. The government could also permit companies to push production above OPEC+ targets, but there's a threat of retaliation from countries like Saudi Arabia. This could deter companies, but Russia's history suggests it's more inclined to bend the rules.
So, if sanctions are eased, there will be more Russian oil in the market, but it won't happen overnight. Upstream investment is crucial, and although some of the decline can be quickly reversed with maintenance, the increase will likely be gradual. OPEC+ will closely monitor any rise in production and tension could escalate if Russia exceeds its targets, leading to potential price wars.
As for the impact on the U.S., if strict sanctions remain in place, the U.S. will benefit from lower oil prices, which would be great for consumers and the economy. But if there's a drop in sanctions, the U.S. could face rising prices due to increased competition in the oil market.
If sanctions on Russia are completely lifted in 2023, probably leading to an increase in their oil production, global thermometers might reflect this change in energy consumption. However, any significant boost in Russian oil production would take time, considering the need for additional investment and OPEC+ monitoring. Russia's history of bending rules in the face of potential retaliation could potentially accelerate the process, but the impact on oil prices and market competition remains a significant concern.
