The oil price rose above $112 a barrel on concerns about a supply crunch after some EU nations were reported to be considering joining the Russian oil embargo and after heavy fighting in Ukraine dampened hopes of a peace deal.
Brent crude jumped by $4.60 to $112.55 a barrel before talks today between President Biden and the leaders of France, Germany and Italy to discuss the next steps in their response to Russia’s assault on Ukraine.
Attacks on civilians in the besieged port city of Mariupol is increasing pressure on Europe to do more. Simon Coveney, Irish foreign minister, said today: “Looking at the extent of the destruction in Ukraine right now, it’s very hard to make the case that we shouldn’t be moving in on the energy sector, particularly oil and coal.”
The European Union and its allies have imposed sanctions against Russia over its invasion of Ukraine, including freezing its central bank’s assets. The dependence of EU states on Russian oil has meant that energy has not been targeted by the 27 nations, unlike the United States and Britain.
Gabrielius Landsbergis, the Lithuanian foreign minister, said that starting to talk about the energy sector was “unavoidable” due to Russia’s dependence on oil revenue. Germany, which depends on Russian gas, is wary because of the effect on already-high energy prices. Annalena Baerbock, the German foreign minister, said “the pictures that reach us from Ukraine are heart-breaking” but declined to answer a question on what could trigger sanctions on Russia’s energy sector.
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Sanctions and boycotts of Russian oil are likely to remove 2.5 million barrels a day from the markets and risk creating “the biggest supply crisis in decades”, the International Energy Agency said last week. Weekend attacks by Yemen’s Houthi rebels on a Saudi Aramco refinery joint venture in Yanbu, Saudi Arabia, added to jitters, as did the latest report from the Organisation of the Petroleum Exporting Countries and allies (Opec+), which showed that some producers are still falling short of their agreed supply quotas.
A number of western countries, including Britain, have urged Opec to increase production to ease the inflationary pressure of higher oil prices. Saudi Arabia and the United Arab Emirates, which have the capacity to immediately raise output, have so far resisted calls to do so, although Saudi Aramco, Saudi Arabia’s state oil company, said yesterday that it would increase investment to meet oil and gas demand after more than doubling its profit.
The surge in the oil price since sanctions were imposed on Russia has increased worries that higher inflation will hit global growth. Stock markets, which rallied last week on hopes of an eventual peace deal, were subdued as attacks on Mariupol intensified after Ukraine rejected a Russian ultimatum to surrender it.
The FTSE 100 rose up 48 points, or 0.7 per cent, to 7,453.75 this morning, buoyed by oil and mining stock as the prices of oil and precious metals rose. Gold, a safe haven in times of uncertainty, strengthened to $1,925.33 after weakening last week when the US and UK raised interest rates. The more UK-focused FTSE 250 fell by 166 points, or 0.8 per cent, to 20,990.84.
Stock markets in Germany and France were trading slightly lower. In Asia, Hong Kong’s Hang Seng lost 0.9 per cent and China’s SSE Composite closed flat. Japan was closed for a holiday.
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Goldman Sachs warned last week that the sharp surge in shares from the “significant relaxation” in concerns about the fallout from Russia’s invasion had left equities more vulnerable to a sell-off.
There are continued doubts about Russia’s ability to service in foreign debt. It managed to avoid default on two dollar bonds last week but must pay $615 million in interest payments this month and a $2 billion bond on April 4.
