Russian President Vladimir Putin has announced a military operation in Donbas, which contains two Russian separatist-held regions of Ukraine, in a move that further escalated tensions with the West and sent Brent crude prices above $100 a barrel, the highest in eight years.
Brent oil moved past $100 a barrel for the first time since 2014 as Russia’s escalation of the Ukraine crisis has led to fears of disruption to the region’s crucial energy exports, particularly to Europe.
The unfolding crisis also sent US crude prices higher, touching an early morning high of $95.67 per barrel, after opening at $92.52 on Thursday.
Vandana Hari, founder of Vanda Insights — a provider of global oil markets macro-analysis, said that the “worst-case scenario” was now unfolding.
“Putin’s latest moves could provoke the full onslaught of the US and EU sanctions, which could bring Russian energy supplies to Europe in the crosshairs,” she said.
“Crude’s rally may have only just begun. Prices will be poised to bound higher with every unfortunate turn of events.The resources to ameliorate further tightness in global oil and gas supply are extremely limited. Should the Kremlin decide to cut off gas exports to Europe, all the world’s gas producers put together do not have the spare capacity to plug the gap.”
Russia is the world’s second-largest oil producer, which mainly sells crude to European refineries, and is the largest supplier of natural gas to Europe, providing about one third of supplies.
While Hari noted that Opec+ has spare oil capacity, she noted there remains questions over whether the producer cartel would “deem it prudent” to open up any of that spare capacity, and, if so, how much capacity it would open up.
Oil Ministers of Gulf producing countries said on Sunday that Opec+ should stick to its current agreement to add 400,000 barrels per day of oil output each month, rejecting calls to pump additional barrels to ease prices. However, this was prior to the military action that has unfolded this week in Ukraine.
“Strategic petroleum reserve releases could help, but again, those are oil. An Iranian deal could help, but that too is oil and the entire 1.3 million bpd of additional capacity locked out by US sanctions may not be able to ramp up quickly,” Hari added.The Ukrainian government is set to introduce a state of emergency across all parts of the country under its control following Moscow’s actions in eastern Ukraine.
Ukrainian Foreign Minister Dmytro Kuleba declared that Putin had “launched a full-scale invasion of Ukraine” and “the time to act is now”.
The Kyiv mayor earlier declared an emergency for the capital effective midnight local time.
Ukrainian news website Ukrainska Pravda cited a Ukrainian interior ministry official as saying on Thursday that Ukrainian military command centres in the cities of Kyiv and Kharkiv had already been attacked by missile strikes.
Meanwhile, Reuters cited witnesses in Kyiv as stating that they had heard a series of explosions shortly after Russia announced the start of the military operation.
‘The world will hold Russia accountable’
The US has already imposed sanctions on the company and executives building Russia’s Nord Stream 2 gas pipeline, while Germany said it was halting the certification of the pipeline.
US President Joe Biden was swift to hit out Russia over what he labelled as an “unprovoked and unjustified attack on Ukraine”.
“President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering. Russia alone is responsible for the death and destruction this attack will bring, and the United States and its Allies and partners will respond in a united and decisive way. The world will hold Russia accountable,” Biden said in a statement late on Wednesday US time.
The US President added that he would meet with his Group of Seven (G7) counterparts on Thursday ahead of a planned address to the nation to outline “the further consequences” the US and its allies would impose on Russia. The G7 is an inter-governmental political forum consisting of Canada, France, Germany, Italy, Japan, the UK, and the US.
Biden also stated that he intended coordinate with NATO to “ensure a strong, united response that deters any aggression against the Alliance”.
A joint statement from European Commission President Ursula von der Leyen and European Council President Charles Michel condemned Russia’s actions “in the strongest possible terms”.
It added European Union leaders will also meet later on Thursday to discuss the crisis and “further restrictive measures” that will “impose massive and severe consequences on Russia”.
“We call on Russia to immediately cease the hostilities, withdraw its military from Ukraine and fully respect Ukraine’s territorial integrity, sovereignty and independence,” the statement read.
“Such use of force and coercion has no place in the 21st century. The EU stands firmly by Ukraine and its people as they face this unparalleled crisis.”
