As these are still early days, a scenario in which Russian oil supplies get disrupted in a sudden manner should also be considered. In the current environment of ever rising tensions, one should also not also exclude the possibility that in an escalation situation where Russia struggles to clear its barrels, weaponizing energy becomes the next chapter in Russia’s ongoing standoff with the West. – Self-sanctioning escalates over the coming weeks leading to a reduction in Russian production and supply disruptions at a larger scale. But there are limits to this strategy given the large volumes of Russian exports and the intensification and widening of sanctions. Also, in response to more extensive self-sanctioning, Urals and ESPO could be offered at discounts so large that cargoes would eventually clear, potentially as masked cargoes or via ship-to-ship transfers. – Russian oil companies could offer sweeteners to buyers to make their barrels more attractive, for instance shifting cargoes from FOB to CFR basis. Particularly, there could be a greater re-redirection of flows from Europe to Asia, but there are limits to such re-direction and not all Urals previously destined to Europe will flow into Asia. – Massive shifts in trade flows and sharp adjustments in price differentials to reflect shifts in Russian crude exports.

The next stages for Russian crude supplies are highly uncertain but some possible impacts include:

Also, it has become clear that traders holding Russian crude on their books are struggling to clear cargoes and this has been reflected in widening differentials and rising shipping and insurance costs. Fears over energy sanctions and the ambiguity over the banking sanctions have already seen companies avoid purchasing Russian barrels, pushing prices to new multiyear highs and shaving-off shock mitigation policies such as the SPR releases.

Looking forward the market focus should not only be on whether the oil sector will be directly targeted by sanctions, but also the crescendo effect of self-sanctioning along the oil supply chain all the way from marketing to financing to shipping. But as sanctions on Russia intensified and as financial institutions started to refuse financing Russia-related transactions, including opening letters of credit or clearing payments and as some companies became reluctant to purchase Russian crude, Brent on March 2 (the time of writing) was trading above $110 for the first time since 2014. Russia-Ukraine crisis: Implications for global oil marketsĪfter weeks of tensions, Russian President Vladimir Putin ordered Russian troops to invade Ukraine, prompting an international sanctions response targeting Russia’s economy but not directly its oil supplies or energy payments.

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