Alexander Pasechnik,

Head of the analytical Department of the National Energy Security Fund

The reaction of global energy markets to Russia’s military operation in Ukraine was not as radical as predicted by a number of global investment banks. Yes, on February 24, a barrel of Brent rose in price at the moment to $ 105 (the last time the price of Brent exceeded this milestone in August 2014). But this is by no means $150 per “barrel”, as described in the forecasts of large financial conglomerates (for example, in recent reviews of Citi, BofA) in the event of the beginning of Russia’s offensive operation in Ukraine. On February 25, stock trading ended at all at $94 per barrel. This is a significant correction. Although “it’s not evening yet— – the bifurcation period for the “barrel” continues (on February 28, the morning quotes of a barrel of Brent again exceeded the $100 mark). And now a lot will depend on further restrictive steps by the authorities of Russia’s opponent countries, which can sometimes “step on their throats”, provoking national energy shortages. Politics here is increasingly clearly replacing rational economic arguments.

At the gas “field”, too, at first, it was very dark: on February 24, the exchange prices for gas in Europe exceeded the $1,600 mark per thousand cubic meters during trading. But on February 25, the quotes entered the $1000 – 1100 corridor, which is already familiar for winter. However, on February 28, quotes at the opening of trading again showed a breakthrough of more than 30%, but in the afternoon this “increase” decreased to 15-20%. Although it is not at all clear when the finale of the “speculative drama” is. By the way, Deputy Chairman of the Security Council of the Russian Federation Dmitry Medvedev predicted impressive “progress” in natural gas prices in Europe on February 22. “Welcome to a new world in which Europeans will soon be paying €2,000 per thousand cubic meters,” Dmitry Medvedev wrote on Twitter. This is how he reacted to the order of the German Chancellor to stop the certification of the operator of the Nord Stream-2 gas pipeline.

The news about Russia’s military operation shook the Russian and stock market — some shares of national oil and gas and energy companies lost half their value or even more on February 24, Russian stock exchanges suspended trading and imposed restrictions on transactions of purchase/sale of securities. Also, the ruble exchange rate weakened by more than 6% during the session, having regained, however, about 3% on February 25. In principle, the entire spectrum of issuers listed on the stock exchange “sank” record-breaking – sales followed due to incoming news about new anti-Russian sanctions of the “collective West” and the prospects for their expansion. The next day, the situation began to improve. For example, Rosneft’s shares have grown by 12%, LUKOIL – by almost 6%, Gazprom – by about 9%, NOVATEK – by more than 13%. Apparently, the extreme “shocks” from the drop in quotations are over, but the period of strong volatility is not over, as Russia’s adversaries announce their readiness to implement new packages of sanctions. Moreover, anti – Russian sanctions are already being introduced almost every day because of the sanctions in Ukraine.

On February 24, Russian President Vladimir Putin announced the launch of a special military operation to protect Donbass (DPR and LPR) from genocide, which is being carried out by the Ukrainian authorities. The Russian Foreign Ministry explained that the purpose of the operation is the “demilitarization and denazification” of Ukraine, there is no question of the occupation of the country. The Ukrainian authorities have imposed martial law. The special operation was preceded by Vladimir Putin’s recognition of the republics of Donbass, to which the “collective West” reacted by expanding sanctions. After the start of the military operation, the anti-Russian sanctions packages began to be rapidly replenished again. Promises of the US authorities and their allies to continue to permanently expand the pool of restrictive measures against Russia have been “showered”.

After the “sanctions” speech of the American leader Joseph Biden, the US Treasury clarified that the restrictions will affect 11 legal entities, including Sberbank, Gazprombank and other banks. Washington and its allies are going to restrict Russia’s imports of high-tech products. According to Biden, this will negatively affect “the possibility of modernizing the Russian military industry, will damage the aerospace sector, will damage shipbuilding and will hit economic competitiveness.” Americans of new bonds of 13 companies, including Gazprom, Gazprom Neft, Transneft, and RusHydro, are also imposing a ban on the purchase.

Certain sanctions specifics regarding the Russian oil industry have also been announced. However, no radical moves have been noted here yet. Although there is some concern in the chains of buyers of “black gold” because of possible new restrictive packages. Also, the Russian Urals brand of oil has fallen in price on a record against the Brent grade. But in general, so far everything is relatively calm.

The head of the European Commission, Ursula von der Leyen, said that there is a component in the new package of sanctions that will “hit” plans to modernize oil refineries in Russia. However, Russian oil and gas holdings have recently completed a rather serious investment cycle in refining.

At the same time, the United States does not plan to impose further sanctions against the Russian oil sector. As it was stated by the State Department’s Energy Security adviser Amos Hochstein. As you know, today the United States receives large volumes of oil and fuel oil from Russia. And the authorities do not want an increase in gasoline prices in the country. Washington traditionally wants to shift the problems to European consumers, pushing them to the oil embargo. The strategic task of the United States is the same as in the case of natural gas — to expand the market for its oil, removing Russian oil from it as much as possible. The White House urges the European Union to the harshest “punishment” of Russia, regardless of the possible economic consequences. Now we are talking about disconnecting Russia from the SWIFT international payment system.

Sanctions circumstances are pushing Russia to accelerate the model of diversification of energy exports — big bets are placed on China. The dynamics here will be accelerated, although the rapid redirection of national hydrocarbon exports is complicated by logistical (infrastructural) reasons.