Ukraine-Russia tensions caused crude oil prices to surge on Thursday afternoon. The escalation in fighting between the two countries has left many worried that it could disrupt oil and gas supplies, which would be bad news for the energy sector and thus the global economy overall. If the conflict can be resolved quickly and without further escalation, then prices will stabilize and perhaps even fall to pre-conflict levels by Friday. If it drags on or further escalates, then we could see more significant increases as supply concerns mount.
Ukraine-Russia Tensions and Oil Prices
Investors are worried that escalating Ukraine-Russia tension could harm global oil supplies. A large amount of crude oil produced in Russia is transported by pipeline from Siberia to other parts of Russia or through Ukraine’s territory. Moreover, most Russian gas exports are sent by pipeline through Ukraine, and about 40% of Europe’s gas imports originate in Russia. It’s hard for investors to avoid geopolitical risk when investing in energy companies, especially in Russia and Ukraine. However, it is unlikely that events will escalate into a full-blown war between these countries. If they do escalate into a war, it may take up to one year for major disruptions across Europe and Asia.
Russia, Ukraine trade blame over tanker attack in Black Sea
Russia and Ukraine traded blame on Sunday after Russia fired on and seized three Ukrainian vessels off Crimea, escalating a conflict between Kiev and Moscow despite a fragile detente. Ukraine has accused Russia of illegally blocking its ships from accessing ports in what it says is Russian territory – a charge that Moscow denies. Ukraine’s president urged world leaders on Sunday to condemn Russia’s actions as dangerous, while accusing Moscow of open provocation. Russian coast guards have issued criminal orders for physical destruction and seizure of Ukrainian military assets, Petro Poroshenko said in a statement. The actions by Russia are nothing but open aggression against Ukraine. The European Union called for restraint amid rising tension over Black Sea waters, but Russian President Vladimir Putin told German Chancellor Angela Merkel he was protecting Russian interests.
Russia Rejects Gas Transit Risk for Kiev as Putin Visits Crimea
President Vladimir Putin insisted Monday that Ukraine’s new leaders must settle its gas debt, rejecting Kiev’s request for a lower transit price as international monitors reported no signs of Russian troop buildups near Ukraine’s border. Putin flew in by helicopter to inaugurate a $3 billion bridge linking Russia to annexed Crimea across a strait where Russian warships have already blocked Ukraine ships. We will not put up with blackmail, he said in televised remarks. Gazprom CEO Alexei Miller said later Monday that gas talks with Ukraine would not resume until it pays off its debt and takes on debt financing from one of Russia’s state banks.