Oil spill from a power plant in Russia compelled President Vladimir Putin to declare a state of emergency. The incident comes at a time when the entire world is fighting Coronavirus while also attempting to cut environmental hazards.
Crux of the Matter
Leakage 20,000 tonnes of diesel leaked into the Ambarnaya river near Norilsk city of Russia which flows into the Arctic Ocean. The leakage occurred in the power plant of Norilsk Nickel, which is the world’s largest producer of nickel and platinum. By expert analysis, it is the 2nd biggest oil leak in Russian history.
How Did It Leak? Thepower plant was based on the top of permafrost, which is ground in a frozen state for more than 2 years. The permafrost weakened due to climate change and made the foundation unstable. On 29 May, pillars of the fuel tank in the powerplant collapsed which spilled the diesel in the river. Experts have predicted the duration of the clean-up process to be 5-10 years. The reason for such elongation is the shallowness of the river as well as the amount of diesel leaked.
Impact As the oil drifted 7.5 miles, President Putin declared an emergency as the oil would contaminate groundwater used for human consumption. A major portion of the river has turned crimson red by the mixture of diesel and water.
A major threat is posed to the wildlife species in the Arctic region, which is considered a vital belt in the ecosystem. The Arctic region hosts several endangered species like the Arctic fox, polar bears, Beluga whales, etc. Experts have predicted a severe loss for aquatic life as the diesel would create respiratory problems in aquatic life.
Recent Spills In Russia And Arctic
1994: Oil pipeline rupture in Pechora river
2007: Oil leak from ship crash by storms in Kerch strait
Lakeview Gusher Number One was an eruption of hydrocarbons from a pressurized oil well in California, in 1910. It created the largest accidental oil spill in history, lasting 18 months and releasing 9 million barrels of crude oil. It was one of the largest oil reserves in the United States.
The International Association of Independent Tanker Owners is a membership association for owners of independent tankers throughout the world. It has observed that “accidental oil spills this decade have been at record low levels—one-third of the previous decade and one-tenth of the 1970s—at a time when oil transported has more than doubled since the mid 1980s.
The Wendy Schmidt Oil Cleanup X CHALLENGE was a challenge award offered by the X PRIZE Foundation for efficient capturing of crude oil from ocean water. Inspired by the Deepwater Horizon oil spill disaster, the award was announced on July 29, 2010, and the official one-year competition began on August 1, 2010. The first two teams were awarded $1 million and $300,000 respectively.
Russia, in a move to gain US oil share, dumped OPEC’s proposal for slashing oil production. In retaliation, Saudi began lowering oil prices by $8-$14 per barrel and proposed an increase in oil production. Global markets came tumbling down but opportunity lies ahead for India to buy cheap oil, reducing its import bill.
Crux of the Matter
The Domino Effect Russia and the Organization of Petroleum Exporting Countries (OPEC) have been in alliance since 2017 for jointly deciding oil prices. They held a meeting to cut down on oil supply amidst the slowing demand due to Coronavirus. The deal collapsed and Russia denied any subsequent supply cuts before assessing the complete impact of the virus. In retaliation, Saudi Arabia, the highest oil producer among OPEC nations, began offering oil to Asia, US, and Europe at an unprecedented low price. Shocking the oil market across the globe, financial markets toppled in response to Saudi’s rate cut.
Oil price here means the price of a barrel of crude oil. With oil prices plummeting nearly 30%, US oil benchmarkWest Texas Intermediate (WTI) plunged by $10.15 to hit $31.13 per barrel, and Brent Crude Oil benchmark plunged by $10.91 to touch $34.36 per barrel. Brent Crude Oil soared at around $68 at the beginning of the year. As the scare of Coronavirus grew, global trade and travel began to slip. So did the oil prices because of the tepid demand.
Saudi Wants to Show Muscle Saudi’s retaliation displays that it has enough capacity to increase oil production more quickly than any other country. Some years ago, Saudi had decided that it will not increase oil production beyond 12 million barrels per day (bpd). However, Aramco said that it has been directed by the Ministry to increase oil production to 13 million bpd. Russia’s Energy Minister, Alexander Novak also hinted at another increase of 500,000 bpd. It remains to be seen how will Russia sustain the increment because unlike Saudi which had created reserves for a situation like this to quickly increase oil production in a week or fortnight, Russia does not have that much capacity.
Saudi Arabia’s show of muscle will also come at a cost. The oil-dependent kingdom was expected to have a wider deficit in 2020. With the addition of the price war and anticipation that the crude prices will hover around $35, Saudi’s economic output of 2020 may fall by nearly 15%.
Russia Aims for the Top Spot US Shale Oil Industries have been thriving since the 2014-16 oil price skid, making US the world’s largest producer of Crude Oil. It produced the world’s 18% oil in 2018. However, the key parameter that drives the growth of American Shale companies is the high price of crude oil. A cheaper crude means that US shale entities would be forced to slash production to sustain.
Russia’s move can be seen in the light of burgeoning American Shale Oil share, which as per Russia, is replaceable. This could also be in retaliation to the US sanction on Nord Stream 2 pipeline that enables Russia to supply gas to Germany at first, and eventually to Europe. Another US sanction on Rosneft subsidiary’s support of the Maduro government in Venezuela may have triggered the Russian price war to capture the share of American shale oil companies.
US oil majors like Chevron and ExxonMobil saw its stock plummet by 12%. Whereas stocks of Pioneer Natural Resources and Occidental Petroleum lost 37% and 52%.
“State actors” are attempting to “manipulate and shock” oil markets…the United States can and will withstand this volatility.
– US Energy Department
Oil Loses, India Wins Saudi’s retaliation to bring Russia on the negotiation table can benefit India, which is the world’s fourth-largest oil importer. With Saudi Arabia offering oil at $8-$14 less and also increasing its production by 2.5 million barrels per day, India has the opportunity to procure crude oil cheaply. One dollar fall in the price of crude oil reduces India’s import expense by an estimatedRs. 3,000 crores. This could have a large impact on India’s Current Account Deficit (CAD). Inflation in India could also get adjusted as transport expenses gradually come down with cheap crude oil.
Other OPEC and non-OPEC nations that are dependent on oil such as Iran and Venezuela may be worse hit due to the price slash. Oil-dependent emerging economies like Brazil and Nigeria may see a cut in their oil revenue. However, China has stockpiled oil at low prices so that it can avoid buying during times when prices soar. This could also be an opportunity for the second-largest oil consumer China to start stockpiling oil at a cheap rate.
What are Shale Companies? The oil shale industry is an industry of mining and processing of oil shale—a fine-grained sedimentary rock, containing significant amounts of kerogen (a solid mixture of organic chemical compounds), from which liquid hydrocarbons can be manufactured. The industry has developed in Brazil, China, Estonia and to some extent in Germany and Russia. The major shale oil producers are China and Estonia, with Brazil a distant third, while Australia, USA, Canada and Jordan have planned to set up or restart shale oil production. More Info
What is WTI? West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light crude oil because of its relatively low density, and sweet because of its low sulfur content. It is the underlying commodity of New York Mercantile Exchange’s oil futures contracts. More Info
What is Brent Crude? Brent Crude is a major trading classification of sweet light crude oil that serves as one of the two main benchmark prices for purchases of oil worldwide, the other being West Texas Intermediate. This grade is described as light because of its relatively low density, and sweet because of its low sulphur content. Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes. The Brent Crude oil marker is also known as Brent Blend, London Brent and Brent petroleum. Brent is the leading global price benchmark for Atlantic basin crude oils. It is used to price two thirds of the world’s internationally traded crude oil supplies. More Info
OPEC and non-OPEC members’ met to discuss oil supply cuts amidst Coronavirus fears. However, Shares of Saudi Arab state oil company Aramco for the first time reached below its original IPO price on 8th March at 30.90 riyals ($8.24) after the meeting failed at putting curbs on oil supply. Its listing price was 32 riyals in December which is now down by 6.36%.
Crux of the Matter
Run on the Oil? The ongoing coronavirus has increased investors’ fears. Amidst that, OPEC and non-OPEC members could not finalize a supply cut in oil production leading to a 7.7% fall in Tadawul, Saudi Arabia’s stock exchange. As OPEC and non-OPEC allies failed to decide, Russia also reportedly refused to allow supply cuts. Russian Energy Minister Alexander Novak after series of meetings in Vienna on March 6 said that members could now pump what they liked starting April 1.
On March 5, 2020, OPEC proposed additionalproduction cuts by both, OPEN and non-OPEC members of 1.5 million barrels per day (bpd) for the first half of 2020. The conditional proposal is based on the support of non-OPEC producers which also includes Russia.
OPEC also warned that the deal could only be applied on a pro-rata basis with core members set to cut 1 million bpd and non-OPEC partners expected to cut 500,000 bpd. Iranian Oil Minister Bijan Zanganeh said, “the group had no plan B if Russia or any other non-OPEC members refused to accept the deal.”
Fallout This had a global impact wherein stock markets fell dramatically. The Abu Dhabi index fell 5.8%, Dubai’s Financial Market General Index was down 7.47% and Kuwait’s premier market index also went negative by 10%.
International and U.S. oil benchmarks reached multiyear lows with Brent crude closing at $45.27, down more than 9% and U.S. West Texas Intermediate fell more than 10% lower to $41.28 which is its lowest level since 2016.
The Organization of the Petroleum Exporting Countries is an intergovernmental organization of 14 nations, founded on 14 September 1960 in Baghdad by the first five members, and headquartered since 1965 in Vienna, Austria. The stated mission of the organization is to “coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.” The organization is also a significant provider of information about the international oil market. The current OPEC members are: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Ecuador, Indonesia and Qatar are former members. More Info
Saudi Aramco is a Saudi Arabian national petroleum and natural gas company based in Dhahran, Saudi Arabia. It is one of the largest companies in the world by revenue, and according to accounts seen by Bloomberg News, the most profitable company in the world. Saudi Aramco operates the world’s largest single hydrocarbon network, the Master Gas System. Its 2013 crude oil production total was 3.4 billion barrels (540,000,000 m3), and it manages over one hundred oil and gas fields in Saudi Arabia, including 288.4 trillion standard cubic feet of natural gas reserves. Saudi Aramco operates the Ghawar Field, the world’s largest onshore oil field, and the Safaniya Field, the world’s largest offshore oil field. More Info
Amidst the fierce battle between Turkish and Syrian government forces in Syria’s Idlib province, the Turkish and Russian presidents; Recep Tayyip Erdogan and Vladimir Putin met on March 5 in Moscow to discuss a ceasefire deal.
Crux of the Matter
The tussle between Turkey and allied Syrian rebels and Russian-backed Syrian government forces could not be brought to end even after all possible diplomacy efforts.
According to the Syrian civil defense group, Russian airstrikes in Idlib have claimed 16 civilian lives and the Turkish Defence Ministry reported that 184 Syrian government force members were killed in the last 24 hours. Turkey said it has destroyed 3 Syrian planes and has destroyed hundreds of vehicles and equipment killing more than 3,000 soldiers since the operation was launched on February 27. United Nations has called this the worst humanitarian crisis as one million people have fled fighting in Idlib after the Syrian government launched a military assault.
In the past week, Russia-backed Syrian army launched an air attack that killed 33 opponent soldiers; Turkey retaliated with a military operation. The meeting of 2 leaders in Moscow is more crucial as it is a ground for recovering a deteriorating relationship between two economic partners. Before the meet, Turkish President Recep Tayyip Erdogan said that he expects to achieve a ceasefire after the talks with Vladimir Putin. Russia will try and maintain its balance between sparing Turkey and supporting Syria in the meet.
Putin had first turned down the meeting with Erdogan in January 2020. In February, Turkey had announced a four-way meeting on March 5 with France’s Emmanuel Macron, Germany’s Angela Merkel and Vladimir Putin but after 5 days of the announcement, Moscow stated that Putin had ‘other plans’ for March 5. Russian Foreign Minister Sergey Lavrov has hoped that some new agreements will be found in the Sochi framework after this meeting.
The 2018 Sochi Agreement A ‘de-escalation zone’ with 12 observation towers around Idlib was created which did not prove to be much effective and it did not make any progress over the years. The Russian military accused Turkey of violating international law by sending troops into Idlib to make up a mechanized division. Turkey accused Russia of breaching the ceasefire agreed in 2018 numerous times.
If a solution is not reached at this point the Syrian crisis would get complicated and also harm the economic projects which Russia has invested in Turkey and undertaken projects which include defense system deals and building the Akkuyu Nuclear Plant. Russia may leverage these to pressurize Turkey to negotiate.
Putin just before the meeting, expressed his regret to President Erdogan for loss of 34 Turkish troops in an airstrike, saying the Syrian army had not known of their location. Ahead of the Moscow talks, Idlib residents have reported heavy shelling by Turkish troops and airstrikes by Russian and Syrian forces.
Though Russia has denied targeting civilians, Turkey’s Anadolu news agency reported that the strikes hit civilians.
Syria and its Refugee Crisis Turkey hosts nearly 3.6 million Syrian refugees and says it cannot absorb more. To extract more funding from Europe, Turkey says it would not abide by the 2016 deal in which it stopped migrants crossing into the European Union in return for billions of euros in aid.
James Jeffrey, the U.S. special representative said, “while the United States supports Turkey, it still has very serious concerns over Ankara’s purchase of Russian S-400 missile defenses last year.”
International Affairs Expert Fyodor Lukyanov said, “Both sides are not linked by mutual interests or trust, but by the impossibility to achieve their goals without the other party’s cooperation.”
Recep Tayyip Erdoğan is the 12th and current president of the Republic of Turkey. He previously served as Prime Minister of Turkey from 2003 to 2014 and as Mayor of Istanbul from 1994 to 1998. In 1976, Erdoğan engaged in politics by joining the National Turkish Student Union, an anti-communist action group. In the same year, he became the head of the Beyoğlu youth branch of the Islamist National Salvation Party and was later promoted to chair of the Istanbul youth branch of the party. In 1983, Erdoğan followed most of Necmettin Erbakan’s followers into the Islamist Welfare Party. He became the party’s Beyoğlu district chair in 1984, and in 1985 he became the chair of the Istanbul city branch. More Info
The Idlib Demilitarization was an agreement between Turkey and Russia to create a demilitarized zone (DMZ) in Syria’s rebel-held Idlib Governorate, to be patrolled by military forces from Russia and Turkey. On 17 September 2018, the Russian president Vladimir Putin and Turkish President Recep Tayyip Erdoğan reached an agreement to create a buffer zone in Idlib. After the deal, on 19 September, the Syrian military attacked positions held by HTS and its allies, in the Hama-Latakia-Idlib axis, stating that it has still not withdrawn its troops from the area. The deal’s terms were never implemented fully. Hayat Tahrir al-Sham (HTS) never left the demilitarized zone and, to the contrary, launched a full-scale offensive against the other rebel groups remaining within the rebel-held Idlib Governorate. More Info
Russian Deputy Ambassador Roman Babushkin has emphasised that the issue of Kashmir should be discussed bilaterally between India and Pakistan and said, “Russia is not interested in raising the matter in the United Nations Security Council (UNSC).”
Crux of the Matter
Russian Deputy Ambassador Roman Babushkin also clarified that Russia’s position is clear and is not changing.
Russia stands on the position that any issue between India and Pakistan should be resolved on a bilateral basis, according to Simla agreement and Lahore declaration.
Recently China had put forward a proposal to hold a meeting on the issue of Kashmir in the UNSC. However, the US, France, UK and Russia rejected the proposal to convene the meeting.
After the removal of Article 370 in August 2019, China and Pakistan have been making numerous efforts to raise the issue internationally.
The United Nations Security Council is one of the six principal organs of the United Nations, charged with ensuring international peace and security, accepting new members to the United Nations and approving any changes to its charter. Its powers include the establishment of peacekeeping operations and international sanctions as well as the authorization of military actions through resolutions. The Security Council was created following World War II to maintain world peace. The Security Council consists of fifteen members. With five permanent members, the council has 10 non-permanent members, elected on a regional basis to serve a term of two years. More Info