• Thu. Oct 6th, 2022

Ukraine-Russia tensions: Oil surges on supply fears

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  • Ukraine-Russia tensions: Oil surges on supply fears

Oil and gas prices are climbing on fears that the Ukraine-Russia crisis will disrupt supplies across the world.

The price of Brent crude, an international benchmark, reached a seven-year high of $99.38 (£73) a barrel on Tuesday.

Russia ordered troops into two rebel-held regions in Ukraine’s east after it recognised them as independent states.

In London, the FTSE 100 share index opened more than 1.4% lower before regaining some ground.

Asian stock markets closed lower, and US stock exchanges were braced for losses.

The UK and several western allies have threatened sanctions on Russia, which is the second largest oil exporter after Saudi Arabia. Russia is also the world’s top producer of natural gas.

Russia a major oil player’
But the US has said calling them peacekeepers is “nonsense”, and that Russia is creating a pretext for war.

The Ukraine-Russia crisis could have “substantial implications” on oil prices, which have jumped more than 10% since the start of the month, said Sue Trinh of Manulife Investment Management.

Sanctions forcing Russia to supply less crude or natural gas would have “important impact on the global economy”, she added.

Russia recognises Ukraine separatist regions
What sanctions could be imposed on Russia?
Maike Currie, an investment director at Fidelity International, said oil could go above $100 per barrel due to a combination of the Ukraine crisis, a cold winter in the US, and a lack of investment in oil and gas supplies around the world.

“Russia accounts for one in every 10 barrels of oil consumed globally, so it is a major player when it comes to the price of oil, and of course, it’s really going to hurt consumers at the petrol pumps,” she said.

There have been US and EU sanctions on Russia for a number of years, which has had a “massive impact” on the Russian economy.

Sanctions are likely to be “deepened”, Ms Currie said, including sanctions on financial institutions, technology such as chips, and individuals.

Most of the oil and gas that the UK imports does not come from Russia, but if Russian supplies are constricted, wholesale prices are likely to rise around the world.

This could drive up already high inflation rates in the UK and elsewhere, economists said.

‘Deep sea of red’
Share price falls worldwide suggested investors were concerned about the developments, which come as the global economy is still recovering from the impact of the coronavirus pandemic.

Japan’s Nikkei 225 index closed 1.7% lower, and the Shanghai Composite fell nearly 1%.

In Berlin, the Dax opened down more than 2% and in Paris the Cac-40 dropped more than 1.5% initially, before both indexes regained some ground.

US markets are also set to open lower.

A possible war is at the forefront of investors’ minds, said Song Seng Wun, an economist at CIMB Private Banking, leaving markets in a “deep sea of red”.

“There are fears that freight and shipping costs, that are already at elevated levels, will climb higher because of demand-supply disruptions,” he told the BBC.

Russ Mould, investment director at AJ Bell, said there had been “another big sell-off on global markets”.

He said investors had been dumping shares in commodity producers, “particularly those with exposure to either Russia or Ukraine – as well as tech and travel stocks”.