The Kremlin announced an end to Russian military operations in Georgia on Tuesday, easing concerns over oil supply distributions in the hot spot region.
Meanwhile, while a ceasefire was beginning the price of oil fell for a third consecutive day as the dollar traded near a five-and-a-half-month high against the euro, and approached a seven-month high against the yen amidst the economic slowdown spreading beyond the borders of the United States.
In London, the price of a barrel fell to $114.23, below the psychological $115 price barrier, by 1:24p.m. GMT. In electronic trading on the New York Mercantile Exchange crude oil for September delivery fell by as much as $1.97, or 1.7%, to $112.48 – a sharp contrast with the incessantly escalating record of $147.27 a barrel reached on July 11.
On Monday, futures fell 75 cents, or 0.7%, to settle at $114.45 a barrel, the lowest close since May 1.
The dollar traded at $1.4901 per euro as of 12:52p.m. GMT Tuesday, from $1.4909 Monday, after earlier rising to $1.4816, the highest since February 26.
Despite claims by Kakha Lomaia, head of Georgia’s National Security Council, on Tuesday that Russian warplanes had attacked a section of the Baku-Tbilisi-Ceyhan (BTC) pipeline, linking the Caspian Sea with world markets, BP said that it wasn’t aware of any such damage.
During the conflict BP and partners had stopped pumping crude into the pipeline, which carries 850,00 barrels per day (equivalent to 1% of world oil consumption) from Azerbaijan to the Black Sea on Georgia’s coastline, as a ‘precautionary measure,’ said Robert Wine, a spokesman for the company,
Now, according to comments released by Dmitry Medvedev, with military conflict resolved and the safety of Russia’s peacekeepers and citizens in the disputed Georgian regions of South Ossetia and Abkhazia assured, the focus has now turned to the pressing issue of the fragile nature of the supply lines to the developed market economies.
Even before the conflict began on Thursday, a large section of the vital BTC pipeline had already been shut down, halting exports of Azeri Light crude from Azerbaijan, due to an explosion on the line in eastern Turkey. BP was forced to divert oil by alternative routes through the Russian port of Novorossiysk and by rail to the Georgian coast.
The migration of Russian troops beyond South Ossetia and deep into Georgia on Monday and the resulting fire from the explosion on the pipeline together left the BTC largely redundant. “Virtually all production has been shut down,” said Eric Kreil, an oil analyst from the Energy Information Administration (EIA) – the statistical and research arm of the U.S. Energy Department.
Like many global hot spots, the conflict in the Caucasus region is in large measure about oil, over who controls the flow of it and subsequently baths in its riches.
The most recent fighting only goes to highlight how quickly a supply problem can escalte and how fragile the infrastructure of dependency is.
