RIYADH, Saudi Arabia – Initial data from the energy market show that non-energy sanctions against Russia have already reduced oil supplies leading to further price spikes and volatility, the International Energy Forum (IEF) said on Monday.
Early market indications from Russia's export hubs in the Baltics and the Black Sea show that demand for its oil has evaporated as traders weigh up the impact of the violence and sanctions on insurance, shipping and credit.
"The sanctions imposed on Russia are not aimed at energy supplies, but they are already having a collateral impact as we are seeing reduced Russian oil on the market in the initial data. Energy markets were already tight prior to the Ukraine conflict and additional supply losses from any source will only exacerbate price spikes and volatility," said Joseph McMonigle, Secretary General of the IEF.
"The IEA's recently announced coordinated release of 60 million barrels from strategic reserves will be helpful to supply temporary liquidity to the market and provide alternative sources to buyers. The world depends on secure energy flows and critical energy infrastructure to prevent severe economic consequences," he added.
As much as 70 percent of Russian oil is struggling to find a buyer, leading to unprecedented discounting. Some traditional buyers of Russian oil have turned to other suppliers after encountering issues securing insurance to cover shipping, a lack of tankers willing to lift the oil, and reluctance among bankers to extend credit lines. Buyers are also reluctant to proceed with purchases given the uncertainty over future sanctions and reputational risk in respect of corporate governance.
The United States announced on Sunday that it was in talks with European partners to ban imports of Russian oil in a coordinated manner. Several companies in Sweden, Finland, Portugal and the United States have already announced the suspension of Russian oil purchases.
There have also been some disruptions to the trade in Russian liquefied natural gas, which is shipped around the world on special pressurized tankers. At least four shipments were diverted from one buyer to another in Europe as some countries shunned doing business with Russia. Pipeline gas supplies to Europe, which relies on Russia for 40 percent of its needs, continue normally.
Mr McMonigle said the IEF was holding intensive consultations with energy producing and consuming member countries and will continue to closely monitor the evolving situation.