Global oil prices climbed to record highs on Tuesday while global equity markets slipped amid fears that a Russian invasion of Ukraine would disrupt supply chains.
Brent crude reached a seven-year high of almost $98 (£72), just hours after Russia recognised two rebel regions in Ukraine as independent states on Monday evening.
The move has sparked concerns among western countries that Russia could embark on an all-out invasion of Ukraine, with UK cabinet minister Sajid Javid saying that the “invasion of Ukraine has begun”.
Several countries, including the US and UK, have threatened to impose sanctions on the Vladimir Putin government.
Crude oil prices increased by more than 20 per cent this year, and by more than 80 per cent since the beginning of 2021, reported CNBC.
Analysts said rising tensions could take crude oil prices above $100 per barrel as prices are expected to remain volatile.
Russia remains the world’s top producer of natural gas and the second-largest exporter of crude oil from Saudi Arabia.
Andy Lipow, president of Lipow Oil Associates, said in a statement to CNBC: “Should we actually have Russian oil supplies cut off to Europe, which is 3 million barrels a day, we could see oil prices rise another $10 to $15 a barrel, putting Brent at about $110 a barrel.”
On Sunday, leaders of Arab oil-producing countries rejected calls to pump more to ease pressure on prices and said OPEC+ countries should stick to adding 400,000 barrels per day of oil output each month, reported Reuters.
Analysts said reviving Iran’s 2015 nuclear agreement may raise the possibility of more than 1 million barrels a day of Iranian crude returning to the market.
On Monday, Iran’s foreign ministry spokesperson Saeed Khatibzadeh had said that “significant progress” had been made in talks to revive Iran’s 2015 nuclear agreement.
“If a Russian invasion [of Ukraine] takes place, as the US and UK have warned in recent days, Brent futures could spike above $100/bbl, even if an Iranian deal is reached,” Commonwealth Bank analyst Vivek Dhar was quoted as saying in a note to Reuters.
Meanwhile, tension between Russia and Ukraine also had an impact on equity markets on Tuesday.
Tokyo’s Nikkei 225 index dropped 1.8 per cent and the Hang Seng in Hong Kong fell 3.2 per cent in early trading.
US markets were closed on Monday for Presidents Day.
The S&P 500 and Dow Jones Industrial Average had both slipped 0.7 per cent.
The Nasdaq composite bore the brunt of the selling, skidding 1.2 per cent.
Small company stocks also fell, with the Russell 2000 index down 0.9 per cent.
Analysts said a full-scale invasion of Ukraine could leave central banks in a difficult position.
“Indeed, a full-scale invasion of Ukraine by Russia will leave many central banks with itchy hiking trigger fingers in a quandary,” Jeffrey Halley of Oanda said in a report.
“The immediate impact would be an exacerbation of the rampant inflationary pressures globally as oil hits $130.00+ a barrel,” he said.
