War in Ukraine and its Impact on Gas Prices

On Thursday morning, Russia attacked Ukraine, sending shockwaves through financial markets and ratcheting up fears about the ramifications for gas supplies around the globe.

The situation in the country is changing rapidly and specific reports from Ukraine are difficult to confirm. Unsurprisingly, European gas prices jumped on the news of the invasion. Meanwhile, international benchmark Brent crude futures exceeded $100 a barrel for the first time since 2014.

Gas prices and sanctions

The U.S. and its allies announced the first wave of sanctions against Russia earlier this week, targeting banks and wealthy individuals. Furthermore, the second barrage of measures is widely expected shortly.

Germany made an important decision this week. It paused a controversial gas pipeline project known as Nord Stream 2, prompting a broader rethink about Europe’s dependency on Russian gas. 

The Russian Federation’s invasion of Ukraine represents one of the worst security crises in Europe in a long time. Russia’s attack on Ukraine is also expected to have far-reaching implications for the global economy. The Russian Federation is the second-largest producer of natural gas in the world. It is also one of the world’s largest oil-producing countries. 

Russia repeatedly disputed claims that it is using gas as a geopolitical weapon. According to Gazprom, it fulfilled its contractual obligations to customers. 

At the moment, energy analysts are deeply concerned about the risk of a full supply disruption to the European Union. The EU receives roughly 40% of its gas via Russian pipelines, several of which run through Ukraine. 

If the Russian Federation cut off its gas supplies, there would likely be huge public health and economic consequences, particularly as such a scenario could come during winter. Analysts from Wood MacKenzie said Europe can satisfy gas demand for now. Currently, Europe is in better condition than it was at the start of winter. The long-term outlook, nevertheless, is more uncertain.