Packaging industry faces “catastrophic” economic blows as Russia threatens to block oil and gas exports

08 Mar 2022 --- The packaging industry could be facing “catastrophic” price rises for oil and gas, as Russia threatens to cut off all supplies to Europe, including through the Nord Stream pipelines, in retaliation to Western sanctions imposed due to the invasion of Ukraine.

Russia’s deputy prime minister Alexander Novak last night warned that if the EU decides to restrict Russian crude exports further, prices could rise to over US$300 per barrel. Germany is currently under pressure from the US administration to impose further divestment and sanctions on one of the Kremlin’s primary economic resources but has so far refused to do so, fearing unsustainable financial consequences. 

“A rejection of Russian oil would lead to catastrophic consequences for the global market,” said Novak, adding that the EU would take years to find replacement oil sources, and even then would “still be much more expensive for European consumers. Ultimately, they will be hurt the worst by this outcome.”

Plastic suppliers and converters and the wider packaging industry rely on oil and gas for production. EU associations are currently attempting to reconcile internal disputes over rising energy prices incurred throughout the past year, largely by force majeures. 

PackagingInsights is awaiting comment from Polymers Alliance Europe on its attempts to bring European plastics players together, which so far has been described as “positive” despite the added volatility caused by the Russia-Ukraine war.Russia currently supplies Europe with a majority of its gas.

Economic war 
Despite an array of heavy international sanctions on Russian products, including a blanket ban on Brent crude imports by the Canadian and US governments, many major industry players are taking matters into their own hands. 

UK-based oil giant Shell pledged to divest from Russian oil and gas entirely this morning, saying: “As an immediate first step, we will stop all spot purchases of Russian crude oil, shut service stations, aviation fuels and lubricants operations in Russia.” 

The corporation made the announcement after coming under fire for profiteering from the war in Ukraine by reportedly buying 100,000 metric tons of discounted Russian oil last week – something it has since apologized for while promising to donate the profits to humanitarian relief efforts. 

Meanwhile, Swiss chemical company Clariant similarly announced immediate suspensions of all business in Russia, which accounts for around 2% of its annual sales. However, some major companies like Coca-Cola, PepsiCo and McDonald’s have refused to join the divestment movement despite international public pressure, which has led to calls for a boycott of their products. 

IEA intervention 
France-based intergovernmental economic organization the International Energy Agency (IEA) says it will release emergency stocks of oil to ease soaring prices and hamper Russia’s threats at driving European costs up even further. Many major oil traders are cutting ties with Russia due to the invasion of Ukraine.

IEA chief Fitah Birol told the Financial Times today that the organization plans to release “as much oil as needed.” He also criticized oil rich nations in the Gulf and South America for not doing more to help replenish global stocks and protect the global market. 

Plastics and packaging 
The US Energy Information Administration says it is difficult to estimate the amounts of oil and gas needed to produce plastic products. Still, industry is likely to be hit hard by divestment, sanctions and supply chain disruptions emerging from the war. 

Naphtha, an essential hydrocarbon used to produce oils and resins for packaging, is likely to soar in cost as economic battles between governments and private businesses continue. Currently, over half of Europe’s Naphtha supply comes from Russia, according to data group ICIS. 

If Russia were to shut down oil and gas supplies through the Nord Stream pipelines entirely, as threatened by the Kremlin, materials such as naphtha would skyrocket in price. Industry associations and market analysts say the situation is unpredictable, with many sanction proposals, company divestments and conflict escalations remaining on the table. 

By Louis Gore-Langton