Reports that Russian President Vladimir Putin had ordered “peacekeeping” forces into the two Ukrainian regions of Lugansk and Donetsk prompted a sharp jump in oil prices today.
Yesterday, after the Russian parliament voted in favor of a proposal to recognize the breakaway regions as independent republics, President Putin signed off on the approval. Soon after, according to the reports, Putin ordered what he described as peacekeeping forces to move into the pro-Russian separatist territories.
He also called on Kiyv to immediately suspend military action against eastern Ukraine. Failing to do that, Putin said, as quoted by TASS, would mean that "the responsibility for any consequent bloodshed would weigh on the conscience of the Ukrainian regime."
Meanwhile, Western leaders have begun to condemn the recognition of the two breakaway republics, with UK's PM Boris Johnson calling it a violation of international law.
If tensions remain as high as they are now, Brent could easily breach the $100 barrier unless the U.S. and Iran manage to strike a deal on Iran's nuclear program in the meantime. What's more, however the Ukraine conflict ends, prices will likely remain high.
"Supply misses are rising. Market recognition of strained capacity is also growing," JP Morgan said, as quoted by Reuters. "We believe this should drive a higher risk premium ... circa $125 a barrel as early as 2Q 2022 and $150 a barrel in 2023."
According to Citi analysts, however, there is too much of a focus on tight supply, and not enough attention is being paid to the potential return of Iranian crude to markets.
"Most market analyses of prices the year ahead have focused on a lack of surplus production capacity and have ignored the likelihood of a return of Iranian oil to markets," they said, as quoted by Reuters.
By Irina Slav for Oilprice.com
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