Russia-Ukraine war: How the conflict adversely impacts European oil and gas reserves

Russia has initiated a military operation against Ukraine's military infrastructure, which might lead to a larger-scale invasion of Ukraine, with the potential of the United States and Europe becoming militarily involved as well. Furthermore, the price of oil has surpassed USD 100 per barrel, raising inflation concerns in oil-importing countries such as India. The world's economies are still recuperating from the COVID outbreak and cannot afford the war's effects. However, because wartime situations often unfold quickly, the hazards have increased.

Global commodity markets are on edge as a result of the geopolitical situation between Ukraine and Russia. Crude oil prices are approaching $100 per barrel. As if this wasn't bad enough, the war might halt the manufacturing and export of a wide range of other goods. All of this is projected to have a significant impact on global economies and fuel inflation, which is already rising in many nations, including the United States and the United Kingdom.

Brent crude oil prices temporarily reached $99.50 per barrel on Tuesday. This is the highest price for oil since September 2014. The United States and Europe have announced broad sanctions against Russia in response to Moscow's recognition of the independence of two separatist areas in Ukraine. Russia is the world's second-largest crude oil producer and exporter. On a daily basis, the country exports 5 million barrels of crude oil, with more than half going to Europe and 42% to Asia. However, disruptions in supply in the world's second-largest crude exporter will have a significant influence on the global oil market.

Russian crude oil exports account for 11% of world crude oil exports. If sanctions remove around 60% of this from global markets (with China, Belarus, and a few other consumers perhaps defying the sanctions), global crude oil supply would fall by 3 million barrels per day, pushing Brent crude prices beyond $110 per barrel. While a prospective resuscitation of the Iran nuclear deal might restore and cover half of this supply gap, Brent crude is expected to remain above $100 per barrel for much of 2022, according to experts.

Russia Ukraine war to impact natural gas prices

The crude oil market isn't the only one that will be affected. Russia also boasts the world's greatest natural gas reserves. In 2021, Russia's natural gas output is expected to reach around 26.92 trillion cubic feet (Tcf), second only to the United States, which is expected to generate around 34 Tcf. Around 35% of Europe's natural gas is supplied by Russia. A large portion of this shipment passes through Ukraine, which collects transit fees.

Due to the Nord Stream pipes that run beneath the Baltic Sea, this is likely to decrease. While Nord Stream 1 is up and running, the second is still in the works. Germany delayed licences for the Nord Stream 2 gas project on Tuesday. Any disruptions in these oil and natural gas shipments will result in a huge scarcity in Europe, as well as a jump in costs. 

(With inputs from agencies)

Image: AP