Feb 22, 2022 - Economy

Ukraine-Russia crisis shakes energy markets

A Ukrainian Military Forces serviceman on Feb. 21, 2022.

A Ukrainian Military Forces serviceman on Feb. 21, 2022. Photo: Aleksey Filippov/AFP via Getty Images

Crude oil prices are moving closer to $100-per-barrel after Russian President Vladimir Putin ordered troops into eastern Ukraine and recognized the independence of two Kremlin-backed separatist regions.

Why it matters: Further escalation would push prices higher and shake energy markets more broadly as tensions with Russia — the main oil and natural gas supplier to Europe — reach their highest levels since the Cold War.

  • Brent crude prices topped $98 this morning before easing slightly.
  • Natural gas prices in Europe jumped this morning.

What's new: German Chancellor Olaf Scholz announced today that the certification process for the Nord Stream 2 pipeline will be halted after the Kremlin's troop order, saying that "the situation has fundamentally changed," Axios' Zachary Basu reports.

What we're watching: The exact shape of sanctions the U.S. and European Union will impose on Russia — and the Kremlin response — as it moves closer to a fuller invasion of Ukraine.

  • It's less likely that the Russian move yesterday will trigger the most punishing Western sanctions, but a further push into Ukrainian-controlled territory held since 2014 may be a different story.
  • Another question is the Biden administration's domestic response to further increases in gasoline prices — already a political problem for the White House — that will follow the crude price increases.
  • The Washington Post reports that White House aides are reviewing whether to release more oil from the U.S. Strategic Petroleum Reserve if Russia curtails supplies.
  • The potential energy ripple effects along with the most effective responses may have been anticipated through White House "tiger team" exercises in recent weeks.

Threat level: "Russia might not even wait until Western sanctions arrive; Putin could use his 'energy weapon' to fire a warning shot of his own (or launch cyberattacks against energy infrastructure) to focus minds in Western capitals," ClearView Energy Partners said in a note yesterday.

  • They say Russia's interest in appearing to be a reliable supplier may prevent an "overt declaration of energy war." But it's possible Russia would seek "plausibly deniable" reasons for curbing supplies, such as cuts via maintenance and allegations of cyberattacks.

The intrigue: While sanctions may not take direct aim at Russian energy, they can still affect the energy sector significantly, the Financial Times reports.

  • "[T]he G7’s threat of financial and economic sanctions on 'a wide array of sectoral and individual targets' could still hit oil companies such as BP, Shell and ExxonMobil, and commodity traders such as Glencore, Vitol and Trafigura, which all have important business relationships in the country," it reports.

Go deeper: What to watch for as Russia orders troops into eastern Ukraine

Go deeper