Oil prices surged in early trading on Monday as Russian President Vladimir Putin put the country’s nuclear deterrent on high alert following escalating sanctions against Russia over its invasion of Ukraine.

Brent raced to as high as $105.07 per barrel in early Asian trades, before easing off to $103.15 by 0500 GMT, still up 5.33% on Friday’s closing price of $97.93 per barrel.

US crude also experienced an early rally, with WTI prices jumping to $99.10 per barrel in early trading, before easing back down to $97.20. However, this was still 6.13% higher than Friday’s closing price of $91.59 per barrel.

Stepping up sanctions

The rally in prices followed additional sanctions over the weekend by the west on Russia, raising fears of supply disruptions from one of the world’s largest producers of oil and gas.

The US and several European nations have all agreed to exclude major Russian banks from the SWIFT messaging system, which enables banks to communicate their financial transactions in a secure manner, and to target the Russian Central Bank’s international reserves.

These reserves are made up of assets and deposits denominated in the world’s major currencies worth $630 billion, as of the end of January, including the Euro, US dollar, British pounds, Chinese yuan, gold and other currencies.

European Commission President Ursula von der Leyen said the European Union and its partners were “working to cripple Putin's ability to finance his war machine."

On Sunday, Japanese Prime Minister Fumio Kishida also announced his country would work with allies to shut off Russia from the global financial system.

"We declare that we are with the people of Ukraine as they act valiantly to defend their sovereignty and territory as well as their motherland and families," Kishida said in an address on Sunday.

While sanctions have not specifically targeted Russian oil and gas exports, Bloomberg energy and commodities columnist, Javier Blas, claimed that excluding Russian banks from SWIFT could prompt “larger self sanctioning by Western banks, refusing to deal with Russia”.

Blas believes that oil is more at risk than gas claiming that, while the US and EU wanted oil trade to continue, “banks have their own ideas, and many simply won't touch the Russian black stuff anymore. Self-sanctioning is in full swing”.

It comes as Reuters reported last week that at least three major buyers of Russian oil had been unable to open letters of credit from Western banks to cover purchases, but the report did not name which banks had refused to issue letters of credit.

However, Bloomberg reported on Sunday that European banks Societe Generale and Credit Suisse Group had halted the financing of Russian commodities.

Meanwhile, on Monday, Reuters reported that Bank of China’s Singapore operation had stopped financing deals involving Russian oil and Russian companies, citing an unnamed source “with knowledge of the matter”.

Putin lashes out

Putin on Sunday labelled the sanctions by the West as "illegal" and ordered Russia’s “deterrence forces", which includes nuclear arms, onto their highest state of alert.

"Top officials in leading NATO countries have allowed themselves to make aggressive comments about our country, therefore I hereby order the Minister of Defense and the chief of the General Staff to place the Russian Army Deterrence Force on combat alert," Putin said in a televised meeting on Sunday.

Meanwhile, in a further escalation to tensions in the region, Belarus approved a new constitution, which will allow the country to host Russian nuclear weapons.

Belarus was included in new sanctions announced by the EU on the weekend, extending the export restrictions the trading bloc introduced on dual-use goods for Russia.

Von der Leyen added the EU would also sanction Belarusians "helping the Russian war effort".

She also revealed the EU was taking the unprecedented step of financing arms to Ukraine.

Western oil and gas giants exit Russia

Further rattling markets on Monday was BP, the largest foreign investor in Russia, revealing that it would exit its 19.75% shareholding in Russian giant Rosneft, which will see the UK supermajor take a massive $25 billion hit in its first quarter results.

Norwegian giant Equinor was the second major European oil and gas producer to cut ties with Russia, announcing Monday it would start the process of divesting its joint ventures in Russia.

The exit of the two European heavyweights could increase pressure on other European oil and gas companies to pull out of Russia, with UK Labour MP Ed Milliband taking to Twitter to urge Shell to divest its 27.5% stake in Gazprom’s Sakhalin-2 offshore gas project.

Meanwhile, Patrick Pouyanne, the chief executive of French supermajor TotalEnergies, said late last week that it did not expect Russia's invasion of Ukraine to impact its operations in Russia.

The French giant holds interests in the Yamal LNG and Arctic LNG projects and a 19.4% stake in Novatek.