Non-energy sanctions have already taken effect on the Russian supply of oil, with reduced supplies, leading to further price spikes and volatility, the International Energy Forum (IEF) said on Monday.
Data on exports from Russia’s hubs in the Baltics and the Black Sea have indicated that demand for the country’s oil has disappeared as the impact of sanctions and its invasion of Ukraine hit energy trading.
“The sanctions imposed on Russia are not aimed at energy supplies, but they are already having a collateral impact as we are seeing reduced Russian oil on the market in the initial data,” Joseph McMonigle, Secretary General of the IEF said in a statement.
“Energy markets were already tight prior to the Ukraine conflict and additional supply losses from any source will only exacerbate price spikes and volatility,” he added.
As of Tuesday morning, Brent crude futures were up to $125.50, a 38 percent jump since the start of the year, while West Texas Intermediate hit $121.22, the benchmarks highest level since 2008. Energy market volatility has spilled over to general market discomfort, with equities falling as fears increase that higher commodity prices could lead to greater inflation and stymie Covid-19 economic recoveries.
“The IEA’s recently announced coordinated release of 60 million barrels from strategic reserves will be helpful to supply temporary liquidity to the market and provide alternative sources to buyers. The world depends on secure energy flows and critical energy infrastructure to prevent severe economic consequences,” McMonigle noted.
According to the IEF, as much as 70 percent of Russia’s oil is struggling to find a buyer, with some traditional buyers turning to other suppliers as sanctions hit insurance and shipping. In addition, buyers face the risk of future energy sanctions – the US and the EU are still considering banning Russian oil imports – and the reputational risk of working with Russia.
Further price volatility is likely should energy import bans be put in place. Some companies in Sweden, Finland, Portugal, and the US have already announced that they will be suspending Russian oil purchases. In addition, there has been disruption in the trade of Russian liquefied natural gas. The IEF says that at least four shipments have been diverted from one buyer to another as firms move from doing business with Russia. Pipeline gas to Europe, however, remains unaffected. Europe relies on Russia for some 40 percent of its pipeline gas needs.
International action following Russia’s invasion of Ukraine has been swift. As of Tuesday, the country surged past Iran to become the world’s most-sanction nation, just 10 days after the invasion began, according to Castellum.ai, a global sanctions database. Since February 22, Russia has been targeted with an additional 2,778 new sanctions.
