As the threat of Russia’s invasion of Ukraine grows, there are concerns that international crude oil production will not be sufficient to ease the impact of Russia’s suspension of energy exports in case of an emergency.
According to Bloomberg News, West Texas Intermediate (WTI) rose 1% to $94.05 a barrel on the New York Commercial Exchange, continuing its recent upward trend. Whenever news of the Ukrainian crisis is delivered, it seems to be getting closer to $100 a barrel.
In the event of an emergency, Russian natural gas exports are more likely to be suspended than oil production. Russia exports about 23 billion square meters of gas a day, accounting for 25% of the world. 85% of Russian gas is exported to Europe. According to investment bank Cowen, Russian gas transportation to Europe through Ukrainian gas pipes is possible up to 4 billion square meters a day, and due to the Ukrainian crisis, transportation is currently only half of the maximum transport capacity.
If Western sanctions against Russia block the export route of Russian energy, Russia itself will be hit hard.
According to Raymond James, a U.S. investment bank, about half of the Russian federal budget is oil and gas-related imports. If the core sanctions “Nortstream 2” (German-Russian gas direct connection) are not approved, Russian state-run gas company Gasprom will suffer $11 billion in losses due to the suspension of the project.
WSJ pointed out that any sanctions will have a knock-on effect in the raw material market, even if they are not direct sanctions aimed at the Russian energy industry.
For example, Russian energy companies have difficulty securing operating funds due to financial sector sanctions.