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Analysts fear the West may soon hit energy exports


Surgutneftegas worker in Surgut Region. He is near the pumpjacks. Yugra, West Siberian petroleum Basin.

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Analysts say it may be only a matterof time before America and its Western allies place full sanctions against Russia’s oil exports. This warning would cause seismic effects on the world’s economy and oil markets.

This is in response to Russia’s assault on key Ukrainian cities enters its second weekThere is fighting in the North, East, and South of the country.

The sanctions that the West has imposed upon Russia in response to the invasion were carefully designed to not directly affect Russia’s exports of energy. However, there is evidence the measures may be making it more difficult for traders and banks to refuse to trade with Russian oil.

Russia, after the United States and Saudi Arabia is the third largest oil producer in the world. It also exports the most oil to the global market. It is also a major producer and exporter of natural gas.

While the U.S. stated that sanctions against Russia’s oil flows and gas are “certainly on our table,” it warned that exporting now might be counterproductive for global energy prices.

However, Western countries have called for Russia’s economic sanctions to be increased. Dmytro Kuleba, Ukraine’s Foreign Minister has asked foreign governments to place an “absolute embargo on Russian oil or gas.”

John Kilduff of Again Capital says the market has already begun to believe Russia’s oil exports would be sanctioned.

Kilduff stated that oil from Russia would be removed from the world market at one point. He also said that commercial activity is being reduced in Russia, especially as it pertains to Russia’s exports via maritime assets. This was reported on CNBC’s closing bell.

“These are barrels we can’t make up. So that’s how this market is at tenterhooks,” said he.

Recent weeks have seen oil prices rise to new multi-year highs, with supply disruptions increasing. This has pushed international benchmark prices up. Brent crude toward $120 a barrel.

Brent futures rose 1.6% to $114.72, while U.S. West Texas IntermediateCrude futures rose 2.2%, to $113.06.

Territories unexplored

Publicly, the U.S. and European Union sought to protect Russia’s energy sector. They were wary of potential domestic consumer damage and the possibility of Moscow cutting off exports in retaliation.

Since months, Russia-Ukraine tensions escalated, leading to a growing concern over the possibility of a Russian invasion. a full supply disruption to the EU — which receives roughly 40% of its gas via Russian pipelines, several of which run through Ukraine.

A cutoff of Russian gas supply could cause serious economic and public health consequences. This is especially true given the fact that Russia’s winter season is over and the governments in battle against the coronavirus pandemic.

The firefighters attempt to put out the flames at the Economy Department Building of Karazin Kharkiv National University. This building was allegedly damaged by recent Russian shelling in Kharkiv, March 2, 2022.

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Brenda Shaffer is a senior adviser for energy for the Foundation for Defense of Democracies. She told CNBC over the telephone that Russian exports of energy would probably cause “a tremendous jolt to global oil prices” and affect the overall economy.

If you take anywhere from 13% to 15% of world oil from this pool, we’re going to be in an unknown area. Shaffer explained that the sanctions against Venezuela and Iran were not equivalent to what it could do to oil prices if most of Russia’s production was removed.

Shaffer stated that the impact of Western oil companies pulling out on Russia’s economy is likely to be “huge”, citing an a flurry of announcementsFrom the likes ExxonMobil, Shell BPIn recent days.

Shaffer explained that people cheer this up as a moment of joy, but in reality it will be a shock to the stocks market and the companies involved.

‘Self-sanctioning phenomenon’

Market participants feel confused by the prospect of Russian sanctions on energy in the coming weeks.

“Russia will continue to wage war against the West with so much fury.” [and]With so many civilian deaths, we can only expect more secondary sanctions to be imposed on energy exports. This is what we witnessed with Iran. According to Helima Croft of RBC’s global commodities strategy, “the market is very, very worried.” Shelima Croft spoke on Tuesday at CNBC’s closing bell.

“If full energy sanctions are imposed, then we’ll have to examine another SPR release. Croft stated that there will be a lot pressure on OPEC producers who have spare capacities to put more barrels on the market.

The International Energy Agency members agreed on Wednesday to free 60 million barrels from their oil reserves in order to mitigate the impact of sanctions against Russia. According to the U.S., 30 million will be from its Strategic Petroleum Reserve.

On Wednesday, OPEC and non-OPEC partners — an influential energy alliance known as OPEC+ — agreedThey will stick with their April plan for a slight increase in output. Despite calls to increase crude oil production, the group refused to accept more crude oil.

Saudi Arabia is believed to be the de facto leader of OPEC, along with Kuwait and the United Arab Emirates.

‘Toxic asset’

Croft claimed that Russia has a self-sanctioning phenomena, even without sanctions on energy exports to Russia. This is because Moscow is seen as an “toxic asset”

Gazprom brand end cap is adjusted on section of pipework by worker in pipeline laying operation for GazpromPJSC Power Of Siberia. The line connects the Kovyktinskoye to Chayandinskoye gaz fields, near Irkutsk (Russia) on Tuesday, April 6, 2021.

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Eurasia Group, a risk consulting firm, has noticed that Russia is losing its commodity trading business. As sanctions are being imposed on Russia, international traders and banks refuse to make deals with Russian counterparts. The analysts said that this was likely to push oil prices higher.

In a Monday note, analysts stated that “While U.S., EU and other governments have attempted to protect the energy sector against sanctions so far”, but they did not provide any further information regarding carveouts. They also noted that widespread fear aversion was likely to continue.

They stated that there is still the possibility that oil will be targeted if conflict escalates or Russia will reduce some oil exports to retaliatory measures. Russia, as the EU’s main source of fossil fuels, retains considerable leverage.