Russia’s invasion of Ukraine has sent energy prices skyrocketing on Thursday, adding additional burdens to the global economy, which is already struggling to make a recovery from the COVID-19 pandemic, and the restrictions that kept numerous businesses out of operations for over a year.
Questions are likely to mount about the flow of oil and gas from Russia into Europe in the coming months, as European nations mull sanctions over Russia for its military operation in Ukraine, which saw the destruction of military airports, bases, and other parts of Ukraine’s national infrastructure.
U.S. President Joe Biden’s suspension of oil and gas leases, as well as his termination of the Keystone XL pipeline, has impacted the United States’ ability to remain energy independent, impacting prices at the gas pump.
In May 2021, Biden waived sanctions against Russia’s Nord Stream 2 pipeline in Germany, a move that was widely criticized as a strategic error.
Brent crude passed the $100 a barrel marker, surging higher than 6% to above $103 a barrel, the highest in more than seven years. According to the New York Times, West Texas Intermediate crude briefly rose to above $100 a barrel.
According to analysts who spoke to the Times, the flow of natural gas in Europe is more likely than oil to be disrupted by the conflict. The price of natural gas jumped by almost 19% to €105.6 a megawatt-hour on the TTF exchange in the Netherlands.
Despite the push to sanction Russia over its energy and oil exports, the Biden administration appears to be holding off on hitting Russia too hard. Administration officials, who held talks with the aluminum industry, are holding off sanctioning Russia’s export of aluminum, Bloomberg reported.
Russian aluminum accounts for more than 10% of U.S. imports of aluminum.
However, despite the Biden administration’s refusal to immediately act against Russia on aluminum, markets remain concerned about western sanctions likely to be imposed in response to the attack on Ukraine.
“The concern is that those financial penalties will disrupt oil and gas flow from Russia, despite assurances to the contrary by Western officials,” the New York Times reported. “In the longer term, Moscow’s aggression against its neighbour and the implied threat to European and global energy supplies are likely to lead to Europe putting much more effort into weaning itself off dependence on oil and, particularly, natural gas imports from Russia, analysts say.”
Russia supplies more than a third of gas supplies to the European Union, with gas pipelines that flow through Ukraine. Europe is also a massive consumer of Russian oil.
The conflict comes following months of tightened supplies of both oil and natural gas, which is driving up prices. The risk of sanctions threatens to drive prices up even further.
The New York Times reported:
In the case of oil, the key question is likely to be whether flows are disrupted as a result of sanctions. Russia is the producer of about one in 10 barrels of oil globally, so any conflict involving it is deeply worrying to oil traders.
If oil prices continue to rise, pressure will grow on countries like Saudi Arabia and the United Arab Emirates — two of the countries thought to have room to increase production — to raise output.
OPEC Plus, a group made up of OPEC and other producers including Russia, has been falling well short of its production targets and has already been pressed by both Washington and the International Energy Agency to step up. Russia, however, is a co-leader of the group along with Saudi Arabia, and so such discussions might be awkward.