Oil and gas prices and other commodities surged on Tuesday following escalating tensions in Ukraine. In particular, prices for energy commodities all across Europe skyrocketed after Germany halted the Nord Stream 2 pipeline.
Futures for international standard Brent crude added an extra 1.5% on Tuesday, ending the day close to $96.9 per barrel. At one point, prices jumped to just under $99.5 per barrel, the highest level seen since 2014. Other commodities like natural gas saw prices jump to 80 euros, or around $91.6 per megawatt-hours.
The Nord Stream 2 pipeline, which is a submerged pipe that links Russia to Germany, still isn’t operational yet. However, the move is seen more as a symbolic gesture than anything else. On the other side, Russian authorities haven’t made any suggestions that they would limit gas output to Europe. However, conflict in Ukraine could end up disrupting exports.
There are three other much-needed gas pipelines besides the Nordstream pipelines located in the Baltic Sea. The most crucial of which is the Yamal-Europe pipeline, while the other two, Brotherhood and Soyuz, both go through Ukraine. Any protracted conflict could easily shut down two of the three major European gas pipelines while the continent is still in the midst of its winter season when gas and oil supplies are already at rock bottom.
“I don’t think a full export ban is going to be imposed. The more important question is: How is Russia going to react? There is nothing that could prevent them to limit supplies to Europe or anywhere else in the world,” said Tamas Varga, PVM Oil analyst.
Varga also went on to add that high oil prices are a bigger geopolitical issue than most people would imagine. For that reason, he doubts that either side will go so far as to stop gas exports. Russia depends on its export income as much as the rest of Europe relies on Russian gas, so both parties are incentivized to keep things running as they are. However, both are going to try and leverage and threaten the other, although both sides know the other is to some extent bluffing.
There’s also some spillover here in the U.S., where the Biden administration has made high energy prices a big issue. For this reason, his administration has been reluctant to target Russia’s energy exports directly. However, other sanctions, like those financial in nature, have been pushed through.
Other commodities that have shot up in price thanks to this situation include agricultural goods. Russia’s also the fourth-largest producer of wheat in the world. A blockade of Ukraine would threaten wheat and corn exports from Black Sea exports. Wheat futures were up over 6% on Tuesday following the news, while corn futures rose by 2.8%.
Going forward, most analysts now expect oil to rise as much as $125 within the coming weeks. However, a stabilizing geopolitical situation could also stabilize prices around their current levels. Other factors, like OPEC’s inability to increase oil output to promised levels, are also influencing the current energy markets and lowering the total global supply available right now.
