Iran conflict rattles oil markets: putin poised to profit amidst global chaos

The war in the Middle East has sent shockwaves through global oil and gas markets, with the potential for further disruption creating a precarious situation for the European Union. The immediate consequence? Crude oil prices surged to nearly $120 a barrel before retreating to around $90 – a volatile swing reflecting the uncertainty gripping investors.

Eu leaders fear putin's gain

European Council President António Costa has bluntly stated that the sole beneficiary of the escalating conflict will be Vladimir Putin, who could capitalize on the disruption of Gulf oil supplies.

The European Commission is now pressing the US to rigorously enforce the G7 price cap on Russian oil, a move prompted by Washington's recent waiver of certain sanctions aimed at curbing the surge in oil prices. “It is very important to strictly enforce the G7 price gap and potentially move to the full maritime services ban to limit Russia’s war revenues, because the opposite would be self-defeating,” asserted European Economic Commissioner Valdis Dombrovskis.

While the EU and UK have capped Russian crude at $44.10 per barrel – a 20% discount – nations like China are buying at market rates, effectively propping up Kremlin coffers. This divergence highlights a critical flaw in the EU’s strategy.

Individual nations are responding with a mix of measures. France is deploying inspectors to petrol stations amid fears of price gouging. Italy has threatened tax hikes on companies perceived to be profiting from soaring wholesale prices. Germany, however, remains steadfast in its stance, prioritizing solidarity with Ukraine over easing sanctions on Russia, a position Chancellor Friedrich Merz defends as a matter of principle.

Hungary and Croatia have been the first EU nations to implement price caps, with Croatia setting limits as low as €1.50 per litre. Hungarian Prime Minister Viktor Orbán has even called for a suspension of sanctions on Russian energy, a move that has drawn criticism from within the bloc.

The ripple effects extend beyond fuel prices. SAS, the Swedish airline, announced temporary fare increases, while Ireland grapples with the soaring cost of heating oil, particularly in rural areas. Despite concerns, the Irish government is resisting immediate intervention, recalling past actions against price gouging.

The situation underscores the fragility of the global energy system. The EU, heavily reliant on external energy sources, faces a stark reality: the war in Iran has exposed vulnerabilities that demand immediate and decisive action. The question now is whether these measures will be enough to prevent a deeper economic crisis.

The EU buys the largest portion of its oil by value from the US (15%), followed by Norway (14%) and Kazakhstan (13%).