BAKU, Azerbaijan, April 2. Halting oil trade with Russia will trigger a lasting increase in energy prices, Trend reports with reference to Fitch Solutions.
“Under our core view, fighting continues until at least the second half of this year, with Russia concentrating its efforts on the Donbas region. While a ceasefire is plausible, it would be difficult to achieve given that the two sides are in stark opposition on key issues, such as the future status of territories captured by Russia during the invasion. Even if a ceasefire can be reached, there is a high risk that it would subsequently break down. As a result, additional sanctions are expected and these will likely remain in place for the foreseeable future. This will maintain upward pressure on Brent, both via a large risk premium and physical trade disruptions. The market is already extremely tight, as is evident in both the futures curved (which is steeply backwardated) and the high premium being paid for wet versus paper barrels,” the company said in its latest report.
Fitch Solutions notes that given its heavy dependence on Russian energy, the EU has been reluctant to directly target oil and fuel trade.
“In fact, some of the financial sanctions put into place so far have been specifically designed to minimise the impact on energy flows. However, a number of other countries have banned the import of Russian oil, including Australia, Canada, the UK, the US and, most recently, Poland. The Polish ban is particularly significant. Poland imports more from Russia than all the other markets combined and, while it has been weaning itself of Russian crude for a number of years, it still accounts for over 60% of total imports. The pressure for the EU to act is building, but a consensus will be hard to reach, with several members flagging the risk of recession in the region, should a ban be imposed. Europe is the largest importer from Russia and halting oil trade would be hugely disruptive for global markets, likely triggering a large and lasting increase in energy prices. For this reason, we still do not expect to see an outright ban by the EU. However, import curbs become more likely, as the conflict devolves,” the report says.