/data/photo/2022/02/14/620a874aaf89b.jpg "The Impact of the Russian Oil Boycott on the International and Indonesian World All")
KOMPAS.com – Western countries plan to boycott crude oil imports originating from Russia.
If this situation is realized, it is certain that world crude oil prices will skyrocket.
Currently, world oil prices have penetrated 120 US dollars (US) per barrel.
Also read: History of the Russia Vs Ukraine Conflict
This brought world oil prices to their highest level since 2008.
Deputy Prime Minister of Russia Alexander Novak said the ban on imports of Russian crude oil would further cloud the current global market conditions.
“The price spike will be hard to predict. The price of oil can reach more than 300 US dollars per barrel,” he added.
Also read: World Oil Prices Skyrocket Due to Russian Invasion, Could there be a Scarcity of Volume 2?
So what if the boycott plan for Russian crude oil is realized?
Increase in fuel price
Gadjah Mada University economist Eddy Junarsin said that if there was a boycott of crude oil from Russia, it is certain that oil prices would increase.
“I think the impact on the increase in oil prices is clear crazyhe said when contacted Kompas.comWednesday (9/2/2022).
According to him, Russia has an important role in the world’s crude oil industry. Moreover, 10 percent of the world’s crude oil production comes from Russia.
“Currently, Russia has been subject to an embargo on banking, goods and services, transportation, and if oil is also subject to an embargo, it means Russia will be subject to a total embargo,” he said.
Profits of crude oil producers when prices rise
Eddy added, actually there is another alternative way to replace the amount of oil production produced by Russia, namely by increasing the amount of production in other oil-producing countries.
However, according to Eddy, this may be difficult to realize because crude oil exporting countries are enjoying rising oil prices.
“So if they are asked to increase production to cover the loss of what Russia has produced, they are most likely reluctant, yes, because they are enjoying good prices,” he said.
If the exporting country increases its production, of course, the price of crude oil will approach the normal price.
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Impact for Indonesia
Eddy said Indonesia must be careful if Russian crude oil is boycotted by Western countries.
This is because the incident caused the price of crude oil to soar and could affect the Indonesian State Budget (APBN).
Moreover, Indonesia still subsidizes kerosene, fuel, and LPG to its people.
“If world crude oil increases, the government’s budget for subsidies will also swell,” he explained.
“Our assumption is that oil per barrel is around 63 to 65 (US dollars). So, if the price per barrel is now 120, and if the total embargo may rise again to 140 like that, it means that our assumption has been missed by half, you know, “said Eddy.
Also read: Complete List of Non-subsidized LPG Prices Rising Starting Today
However, the government cannot immediately eliminate subsidies, because it can cause a commotion in the country.
What Indonesia might do in response to this incident is to make efficient use of fossil oil.
Eddy suggested the government to reorganize budget to subsidize the community.
Also read: List of Non-subsidized Fuel Prices Starting February 12 and the Reasons Behind The Rise…
Economic impact in the United States (USA)
Illustration of rising world oil prices-
Furthermore, Eddy added that the United States will also be affected if Russian crude oil undergoes a boycott.
The current price of oil in the US in big cities per gallon is around 7 US dollars or around Rp. 100,219, while in small cities it is 4 US dollars or around Rp. 57,268.
“The price of fuel in big cities is already over 7, 7 dollars per gallon is already high very,” he explained.
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In the US, he added, there is no subsidy for crude oil, so the price given is purely using the world crude oil market price.
Please note, for the US use of gallons, one gallon is about 3.79 liters.
With rising oil in the US it will be able to cause a chain effect that can cause inflation and social problems.
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The following is a chain effect in the US if the price of crude oil increases according to Eddy:
- Prices of goods and services in general have increased
- Inflation rate will rise
- Interest rates have increased
- If interest rates rise, the business world will find it difficult to expand and it will be difficult to borrow money because the interest is high
- If the business world is constrained, the unemployment rate will rise
- Then economic growth stuck or even down
- After that, there were social problems and social commotion.
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Impact in Western Europe
If there is an embargo on Russian crude oil, it is possible that Western Europe will feel the effects more severely than the United States.
Eddy explained that cultural differences in the economy made the oil embargo more difficult for Western Europe.
Governments in Western European countries still provide subsidies to their citizens, while the US itself rarely subsidizes its citizens.
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Although Western European countries have a capitalist/liberal system, their social democrats are stronger than the US, which is purely capitalist.
“So the burden on the government in western Europe will be worse than America, because the government subsidies are related to social facilities and so on,” he said.
“That Western Europe may a social-democratic country. So even if they are capitalist/liberal countries like that but the social democrats are still stronger, in America may really pure capitalism,” he said.
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The following is a chain effect in Western Europe if the price of crude oil increases according to Eddy:
- Prices of goods and services in general have increased
- Inflation rate will rise
- Interest rates have increased
- If interest rates rise, the business world will find it difficult to expand and it will be difficult to borrow money because the interest is high
- Western European currencies will depreciate
- If the business world is constrained, the unemployment rate will rise
- Then economic growth stuck or even down
- After that, there were social problems and social commotion
- Finally maybe the government will fall
Eddy also said that the currencies of Western European countries would collapse or depreciate if interest rates in those countries were high.
On the other hand, the US dollar will strengthen because people when the world is in critical condition prefer to keep their assets in the form of gold or US dollars.
“So the effect is quite serious, I think it will affect the world, even in developed countries,” said Eddy.
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Peaceful solution
According to Eddy, the best solution to stop the impact of soaring crude oil prices is to reconcile Russia and Ukraine.
“The solution is to reconcile the two (countries), that’s the best solution, when it’s peaceful, it’s back to normal,” he said.
In addition to the peaceful option, Eddy said that the Indonesian government can only reduce the impact by delaying future problems.
The war causes losses to various parties, developed countries and developing countries alike will suffer losses, even Russia can be completely destroyed because of the embargo.
“So indeed trying to give an appeal for peace makes a lot of sense, because that is the solution,” explained Eddy.
Also read: Why are Russia and Ukraine at war?
Infographic: Military Strength Comparison of Ukraine vs Russia
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