Russia has launched a full-scale military operation against Ukraine in a move that sent Brent and US oil benchmark prices above $100 per barrel and is set to trigger further sanctions by Western nations.
Brent oil led the way, surging past $100 per barrel for the first time since 2014 as Russia’s escalation of the Ukraine crisis stoked fears of disruption to oil and gas exports, particularly to Europe.
President Vladimir Putin announced early on Thursday morning that military operations were being launched in Ukraine's eastern Donbas region, but missile attacks and shelling have been reported close to several Ukrainian cities, even in the west of the country, with reports of airfields being targeted.
Vandana Hari, founder of Vanda Insights — a provider of global oil markets macro-analysis, told Upstream that the "worst-case scenario" was now unfolding.
"Putin’s latest moves could provoke the full onslaught of the US and EU sanctions, which could bring Russian energy supplies to Europe in the crosshairs," she said.
"Crude’s rally may have only just begun. Prices will be poised to bound higher with every unfortunate turn of events.
"The resources to ameliorate further tightness in global oil and gas supply are extremely limited. Should the Kremlin decide to cut off gas exports to Europe, all the world’s gas producers put together do not have the spare capacity to plug the gap."
The unfolding crisis also sent US crude prices above the $100 per barrel mark for the first time since 2014, with West Texas Intermediate touching $100.54 per barrel in early European trade, after opening at just $92.52 on Thursday.
Russia is the world’s second-largest oil producer and mainly sells crude to European refineries. It is also the largest supplier of natural gas to Europe, providing about one third of supplies.
While Opec has spare oil capacity, it is not clear if the producers’ group — which includes Russia a key member of the Opec+ group — will do so.
Oil Ministers of Persian Gulf oil producing countries said on Sunday that Opec+ should stick to its current agreement to add 400,000 barrels per day of crude output each month, rejecting calls to pump additional barrels to ease prices.
However, this was before the military action unfolded this week in Ukraine.
"Strategic petroleum reserve releases could help, but again, those are oil. An Iranian deal could help, but that too is oil and the entire 1.3 million bpd of additional capacity locked out by US sanctions may not be able to ramp up quickly," Hari added.
State of emergency in Ukraine
The Ukrainian government introduced a state of emergency across all parts of the country under its control following Russia’s actions in eastern Ukraine.
Ukrainian Foreign Minister Dmytro Kuleba declared that Putin had “launched a full-scale invasion of Ukraine” and “the time to act is now”.
Ukrainian news website Ukrainska Pravda cited a Ukrainian Interior Ministry official as saying on Thursday that Ukrainian military command centres in the cities of Kiev and Kharkiv had already been attacked by missile strikes, which appeared to be later confirmed by Ukrainian President Volodymyr Zelenskyy.
"There are strikes on military and other important defense facilities, border units are under attack, the situation in the Donbas has degraded," Zelenskyy said in a statement on Thursday.
'The world will hold Russia accountable'
The US has already imposed sanctions on the company and executives building Russia's Nord Stream 2 gas pipeline, while Germany said it was halting the certification of the pipeline.
US President Joe Biden was swift to hit out Russia over what he labelled as an "unprovoked and unjustified attack on Ukraine".
"President Putin has chosen a premeditated war that will bring a catastrophic loss of life and human suffering,” Biden said in a statement late on Wednesday US time.
“Russia alone is responsible for the death and destruction this attack will bring, and the United States and its Allies and partners will respond in a united and decisive way.
“The world will hold Russia accountable,” he added.
Biden said he would meet with his Group of Seven (G7) counterparts on Thursday ahead of a planned address to the nation to outline “the further consequences” the US and its allies would impose on Russia.
The G7 is an inter-governmental political forum consisting of Canada, France, Germany, Italy, Japan, the UK, and the US.
Biden also stated that he intended coordinate with NATO to "ensure a strong, united response that deters any aggression against the Alliance".
A joint statement from European Commission President Ursula von der Leyen and European Council President Charles Michel condemned Russia's actions "in the strongest possible terms".
It added European Union leaders will also meet later on Thursday to discuss the crisis and "further restrictive measures" that will "impose massive and severe consequences on Russia".
"We call on Russia to immediately cease the hostilities, withdraw its military from Ukraine and fully respect Ukraine's territorial integrity, sovereignty and independence," the statement read.
"Such use of force and coercion has no place in the 21st century. The EU stands firmly by Ukraine and its people as they face this unparalleled crisis."
Announcements of new sanctions were expected on Thursday, from the European Union and its member states and from the UK, where Prime Minister Boris Johnson is scheduled to make an announcement.
However China's Foreign Ministry spokesperson Hua Chunying on Wednesday indicated that China would not impose its own sanctions against Russia, while adding it would oppose "all illegal unilateral sanctions".
In a press conference on Wednesday, which was held before Putin ordered the military operation in Ukraine, Hua noted that the US had already imposed more than 100 sanctions on Russia since 2011.
"However, have the US sanctions solved any problem? Is the world a better place because of those sanctions? Will the Ukraine issue resolve itself thanks to the US sanctions on Russia? Will European security be better guaranteed thanks to the US sanctions on Russia? We hope relevant sides will give this some serious thought and strive to resolve issues through dialogue and consultation," she said.
“I would also like to point out that the illegal unilateral sanctions by some countries including the US have caused severe difficulties to relevant countries’ economy and livelihood. When handling the Ukraine issue and relations with Russia, the US mustn’t harm the legitimate rights and interests of China and other parties,” Hua added.