The silent effect of geopolitics and its impact on fuel prices  (I)

Malaika is a Senior Vice President, Energy & Infrastructure, Oil & Gas, Corporate and Investment Banking, Stanbic Bank Ghana

By Malaika Dela BAKAR

Geopolitics refers to the study of the effects of geography (both human and physical) on international politics and international relations.

The term embodies the concept that strategic geographic and historical factors influence political decisions and the relations between states on a global scale.

Geopolitics often considers factors such as economic resources, territorial boundaries, demographic pressures, and cultural ties when analysing the global political landscape. Geopolitics impacts all spheres of our lives and plays an important role on an ongoing basis.

In this article, I seek to unpack the impact of global geopolitical events on the price of refined petroleum products in Ghana and what this means for the future given the ongoing eruption of emerging events globally. Going a few years back in our recent history, with the period from 2018 and onwards being a good reference point, it is worthy of note that several significant geopolitical events have and continue to shape the global landscape.

Key among them include the US-China Trade War which saw the US imposing tariffs on billions of dollars’ worth of Chinese goods, resulting in retaliatory tariffs from China.

Although this was essentially two countries going at each other, the implications were far reaching for global trade and economics. Other events like Brexit, the COVID-19 Pandemic, the Russia-Ukraine war, COP26 which was a pivotal moment in the area of Climate Change Initiatives and agreements which saw various countries making global commitments to do their part to reduce the impact of climate change, and finally the recent flaring up of tensions between Israel and Gaza have all had significant impact on global economies.

The Russia-Ukraine war, which began in February 2022, has had profound implications for global energy markets, particularly affecting diesel prices in Europe, with a trickle-down effect in markets like ours.

Being one of the world’s largest producers and exporters of crude oil and refined products, Russia’s reduced supply to Europe due to the conflict and subsequent sanctions created significant disruptions.

Following Russia’s invasion of Ukraine, the European Union and other Western nations imposed stringent sanctions on Russian energy exports, which included diesel and other crude products.

Russia in retaliation reduced its supply to Europe leading to a substantial supply gap, prompting the European nations to source their demand from other markets, thereby putting pressure on the commodity and increasing the price. The recent attacks on Russian refineries by Ukraine have also had significant impact on oil prices.

Again, the onset of the war saw an almost immediate surge in the price of diesel across Europe. Throughout 2022 and into 2023 and even now, diesel prices remain volatile.

The uncertainty surrounding the duration of the conflict has kept prices elevated and unpredictable. All of these resulted in some sort of market re-balancing taking place, where European countries increased import of diesel from the Middle East, Asia and even the United States to help cater to the shortfall.

It is important to note, however, that the logistics of securing and transporting these alternative supplies added to costs, keeping prices of diesel high. It is safe to say this has influenced the price of the product locally as well.

The topic of geopolitics in Oil and Gas cannot be addressed without including the impact of OPEC (Organization of the Petroleum Exporting Countries) and its allies (OPEC+) on the commodity. This group of member states plays a pivotal role in shaping the global oil market, thereby significantly influencing fuel prices worldwide and with far reaching consequences for ex-pump prices in countries like Ghana.

Key examples include the 2020 price war between Saudi Arabia and Russia, both key OPEC+ members, which led to a significant drop in oil prices because of the refusal of Russia to cut production in response to reduced demand on the back of COVID 19, angering Saudi Arabia who responded by flooding the market, causing prices to plummet.

That saw the fall of Brent Crude to below $20 per barrel in April 2020. The negative impact of the price drop resulted in OPEC and its allies agreeing to a 9.7million barrels per day production cut to prevent the collapse of oil prices.

Again in 2021, following the ongoing global recovery from COVID 19 which saw the rebound and demand for oil surge, OPEC and OPEC+ faced pressure from the west to boost production to meet demand and stabilize prices. This resulted in them agreeing to gradual increases in production output.

A significant moment was in July 2021 when OPEC+ agreed to increase production output by 400,000 barrels per day each month starting in August 2021. This decision was aimed at helping to balance the market and price, amid the reopening of economies and travel demands, all fuelling higher energy consumption.

Being a net importer of refined petroleum products, it is safe to say that Ghana has over the years been impacted by the effects of some of the above listed events.

Fig 1: Important Geopolitical Events from 2018 till Date

Now, linking this to the price of refined petroleum products at the pump reveals some interesting details that most citizens may be oblivious to. For every Ghanaian who uses petroleum products in one way or the other, many of us have never really taken the time to understand where the products come from, how it gets into the country and finally, whether the price being offered at the pump is fair or has any indication of the developments that continue to unfold on the global scene.

Despite our current producing Oil and Gas fields, we remain heavily reliant on imported petroleum products to sustain our economy. A major reason for this is the fact that Ghana owns circa 18% of the oil produced locally.

This is inadequate to meet Ghana’s consumption of petroleum products which is beyond 100,000 barrels per day. Ghana’s current production averages around 130,000 barrels per day, across the 3 producing fields. This, coupled with the absence of efficient refining capacity, has seen GNPC export the oil for direct value for money.  Most of these products come in through trade routes that very few of us know even exist.

Ghana’s main routes for importing refined petroleum products primarily involve maritime transport, given its geographical location along the Gulf of Guinea with some import sources being Rotterdam, Russia, the US, as well as the UAE region.

The ports of Tema and Takoradi play pivotal roles in these imports, with Tema, having been developed into a significant petroleum import and handling facility, which includes storage facilities, a Conventional Buoy Mooring (CBM) system (an offshore facility for petroleum products discharge), an oil jetty, etc, and is a key distribution point for refined products both in Ghana and onwards into parts of the West African sub-region.

Key international trading companies that deliver into Ghana include BP, Vitol, Glencore to mention a few. Other names include the likes of Sibet, Nest Wise and Edurc which are emerging names in the import market.

Next time you are driving along the Sakumono beach at night, take a look over the horizon and I’m sure you will notice lots of twinkling lights not too far off. These lights, a pretty sight to behold, belong to the vessels that bring products into the country from different global locations.

Malaika is a  Senior Vice President, Energy & Infrastructure, Oil & Gas, Corporate and Investment Banking, Stanbic Bank Ghana


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