Oil prices came within a whisker of hitting $100 a barrel and gas prices surged yesterday as the Ukraine crisis escalated.
Brent crude, the global benchmark oil price, touched $99.50 a barrel, the highest since September 2014, after Moscow ordered troops into two breakaway regions in eastern Ukraine.
Western leaders responded with moves to impose new sanctions on Russia while Germany halted approval of Russia’s new Nord Stream 2 gas pipeline. That raised hopes that Russian aggression may be contained, helping global stock markets to claw back heavy losses and leading to a slight easing of oil prices, which were trading up 1.5 per cent at $96.83 last night.
However, Germany’s moves against Nord Stream 2 raised further concerns over Russian gas supplies to Europe, triggering a fresh rally in European prices, with UK benchmark gas prices rising by 10 per cent to more than 190p a therm.
The rising commodity prices threaten further painful inflation for consumers who are facing record energy bill increases from April and paying all-time-high prices for petrol.
Britain gets very little gas directly from Russia but is linked by gas pipelines to Europe, which gets about a third of its gas from Russia. UK and European prices are closely correlated.
Responding to Germany’s decision to halt Nord Stream 2 certification, Dmitry Medvedev, the former Russian president, tweeted: “Well. Welcome to the brave new world where Europeans are very soon going to pay €2,000 for 1,000 cubic metres of natural gas!”
That would be more than double current prices and equate to 19 per cent higher than the record prices set in late December, analysts said.
Christopher Louney, commodity strategist at RBC Capital Markets, said: “While the White House does not have the intention to directly sanction Russian energy exports given concerns about exacerbating Europe’s already precarious energy situation, energy exports are still at risk, gas included, either because Russia chooses to weaponise its energy exports in retaliation against other sanctions, or because some transportation capacity is shut in due to kinetic conflict.”
Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, said “an effective set of sanctions must eventually include not buying Russian oil and gas for Continental Europe” but that action would be “costly, particularly for living standards”.
“Any international action will likely not only to add to the current inflationary binge, possibly bringing inflation close to 10 per cent, but also should slow down growth,” he said.
The FTSE 100 reversed its early losses, helped by rising oil prices. It ended the day up 9.88 points, or 0.1 per cent, at 7,494.21. In Europe, Gemany’s Dax closed down 38.12 or 0.3 per cent at 14,693.00 and the CAC40 in Paris fell by just 0.74 or 0.01 per cent at 6787.60.