The internal military struggle in Russia adds limited oil price pressure amid heightened tensions in Moscow.

Russian paramilitary organization Wagner Group on 24 June, began an armed insurrection in Russia.

Within hours, however, the group announced it had abandoned the insurrection against the country’s armed forces, ending what could potentially have been the first coup attempt in Russia for three decades.
In the last 35 years, geopolitical events in big oil producers have increased oil prices by an average of 8% in the five days after the start of the triggering event.

Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week.
We do, however, believe that the geopolitical risk amid internal instability in Russia has increased.
As such, we are likely to see a marginal uptick in oil prices in the coming days, if the situation does not deteriorate further.

Signals

  • Convoys of Wagner troops crossed from Ukraine into Russian territory, seizing military facilities in the southern Russian cities of Rostov-on-Don and Voronezh before moving towards Moscow, halting their advance just 200 kilometers from the Russian capital.
  • Russian President Vladimir Putin issued an address to the nation on the morning of 24 June, calling the events taking place an insurgency and assuring citizens that it would be brought under control by authorities.
  • Within a few hours, Wagner leader Yevgeny Prigozhin announced the group had abandoned its insurrection against the country’s armed forces, ending what was potentially the first coup attempt in Russia for three decades.
  • While uncertainty remains over how the situation will unfold, this apparently short-lived insurrection has uncovered internal instability within Russia’s political and military mechanism.
  • Geopolitical uncertainty in big oil producers – ranging from civil unrest to coup attempts, armed conflicts and changes of governments – have not been uncommon in the last few decades.
  • Historically, such geopolitical uncertainty in big oil producers has immediately added significant upside pressure to oil prices, even though the flow of oil supplies has not immediately changed.
  • In the last 35 years, geopolitical events in big oil producers – such as the 1990 invasion of Kuwait by Iraq, the ensuing Gulf War, the 1992 coups in both Algeria and Venezuela, the 2002 invasion of Iraq by the US, civil wars in Libya in 2011 and 2014, drone attack in Saudi Arabia in 2019, and the outbreak of war between Russia and Ukraine in early 2022 – have increased oil prices by an average of 8% in the five days after the start of the triggering event.
  • The short-lived insurrection this weekend in Russia appears to have ended. Therefore, we do not expect to see a significant increase in oil prices next week. However, we do believe that the geopolitical risk amid internal instability in Russia has increased. As such, we are likely to see a marginal uptick in oil prices in the coming days, if the situation does not deteriorate.

Signposts

  • Geopolitical developments in Russia in the coming hours.
  • Possible spill-over effect in Former Soviet Union countries – political unrest in other oil-producing countries in the region, such as Kazakhstan and Azerbaijan, could add a further risk premium to oil prices.