Oil prices skyrocket to $115 as Brussels debate sanctions on Russia – Unavoidable

Boris Johnson outlines plan to phase out Russian oil and gas

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It comes as the EU countries discuss the possibility of sanctions on the Russian energy sector in light of the Kremlin’s continued aggressive war against Ukraine. Some countries, such as Ireland and Lithuania, have suggested that an embargo on the Russian oil industry was necessary to cut off Moscow’s main source of income.

Irish foreign minister Simon Coveney said that Russian attacks on Ukrainian cities, such as the ongoing destruction of Mariupol, made a moral case for an embargo.

He said: “Looking at the extent of the destruction in Ukraine right now, it’s very hard to make the case that we shouldn’t be moving in on the energy sector, particularly oil and coal.”

Lithuanian foreign minister Gabrielius Landsbergis, said that talking about sanctioning the energy sector was “unavoidable” due to Russia’s dependence on oil revenue.

However, with its dependency on Russian oil, Germany is less keen on an embargo with Berlin sceptical another supply could be found in the short term.

German foreign minister Annalena Baerbock argued that it wasn’t realistic to suddenly change Europe’s dependency on Russian oil.

She said: “The question of an oil embargo is not a question of whether we want or don’t want [it] but a question of how much we depend on oil.

“Germany is importing a lot [of Russian oil] but there are also other member states who can’t stop the oil imports from one day to the other. If we could, we would do it automatically.”

Oil prices have been volatile since the Russian invasion of Ukraine last month which pushed prices up to $139 at one point when the US announced a ban on Russian oil imports and the UK vowed to phase out supplies by the end of the year. 

Moscow’s assurances that they would fulfil existing energy contracts, supposed progress in peace talks and the initial reluctance in Brussels to impose an embargo helped the market rally with prices dropping to below $100 a barrel last week.

However, talks of an EU embargo will likely make investors nervous as the continuation of the war will reinforce concerns about supply.

There is also concern about the possibility of alternative supplies in the Middle East.

Although Saudi Arabia and the United Arab Emirates have the immediate spare capacity to ease the expected shortfall there is little sign of either state engaging in the extra output required. 

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This is likely to be exacerbated by the fact that Yemen’s Houthi rebels attacked a refinery in Saudi Arabia at the weekend potentially causing further disruption to supply.

Even before Moscow’s invasion of Ukraine oil prices had been soaring for months due to the mist match between demand and supply.

Oil producing countries particularly in Africa and the Middle East failed or refused to keep up with the increased demand following the gradual easing of coronavirus related restrictions.

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