Russia has its own mysterious reasons for invading Georgia, one of its neighbors to the South, and there is some speculation that it would like to take on other small nation states to secure its borders in the region.
Whatever the motivation may be, it will almost certainly push up the price of oil and some commodities, particularly if it the battles go on for any extended period.
The standard argument for wars increasing prices is that they reduce the value of money and cut consumer spending. The Russian conflict is much different.
Russia is one of the largest oil producing nations in the world and also ranks as one of the top producers of agricultural products. Georgia does not produce oil but it is a key transit point for crude and gas exports from Azerbaijan to markets in the West.
The US and its fellow NATO members are likely to make a hard political push to get Russia to retreat inside its borders. Where the tension of the argument will lead is anyone’s guess, but Russia’s feelings for the West could deteriorate. At some point it may have little reason to cooperate in joint oil production facilities built with countries based in the US and EU.
All the reasons for falling oil, now down from over $145 to $115, were thought to be in place. Demand in the US has fallen. Production from OPEC has been steady. Political unrest in oil exporters has turned mild.
A war is a different matter altogether. It is as unpredictable and destabilizing, just the things crude markets loathe.
Douglas A. McIntyre
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