Ukraine crisis: crude oil price soars as sanctions on Russia spur fear of a global energy crisis

Oil soared as energy and commodity markets were thrown into a state of disarray after Western nations unleashed more sanctions to isolate Russia following its invasion of Ukraine.

Brent futures jumped more than 7 per cent before pulling back slightly to trade near US$103 a barrel. Oil supply was already struggling to meet the demand recovery from rebounding economies, and any disruptions to flows from the world’s No. 3 producer could sharply exacerbate the tightness. China and other buyers have paused purchases of Russia’s flagship Urals grade, while some Asian customers are frantically trying to secure more Middle Eastern crude.

Western nations agreed over the weekend to exclude some Russian lenders from the SWIFT bank messaging system and targeted the central bank’s foreign reserves. BP also moved to dump its shares in oil giant Rosneft, taking a financial hit of as much as US$25 billion.

Russia’s invasion of Ukraine has roiled markets from energy to metals and grains, heaping more inflationary pressure on a global economy already hit with surging costs. At least two of China’s largest state-owned banks are restricting financing for purchases of Russian commodities, underscoring the limits of Beijing’s pledge to maintain economic ties with one of its most important strategic partners in the face of Western sanctions.

Against this volatile and fast-moving backdrop, OPEC+ faces a trickier task than usual when it meets on Wednesday to discuss its supply policy for April. Despite the invasion, the cartel will probably stick to its plan of gradually increasing oil production, according to delegates. The group will also have to take into account the halt of some Iraqi output.

“Removing some Russian banks from Swift could result in a disruption of oil supplies as buyers and sellers try to figure out how to navigate the new rules,” Andy Lipow, president of Lipow Oil Associates in Houston, said in a note.