Oil prices soared to the highest level since 2008 as Britain and the US consider banning oil imports from Russia as the Ukraine war intensifies.
Brent crude oil (BZ=F) jumped to a 14-year high on Monday, rising as much as 15% to $139 (£105.12) a barrel. This is about $8 below the all-time record of $147.50 set in July 2008. The benchmark is currently up 6.7% to $126.03, while West Texas crude (CL=F) rose 4.4% to $120.73 at the time of writing.
While the west has so far refrained from targeting the Kremlin's energy sector the announcement has sparked fears that president Vladimir Putin could retaliate by cutting European gas supplies.
"So far there have been no country-level sanctions on Russian commodity products, merely the decision of various customers not to buy," said Russ Mould, investment director at AJ Bell.
"It seems we could be moving to the next stage whereby countries lay down rules to not buy oil and other commodities from Russia which in turn would reduce its funding for the war."
Ukraine and Russia are set to hold negotiations for the third time since the invasion on Monday at 4PM Kyiv time (2pm GMT), according to Mykhailo Podolyak, one of president Volodymyr Zelensky's top advisors.
Negotiations with the Russian Federation. Third round. Beginning at 16.00 Kyiv time. Delegation unchanged... pic.twitter.com/ycfT9LT0tc
— Михайло Подоляк (@Podolyak_M) March 7, 2022
Russia’s economy is heavily dependent on commodity exports and a potential ban risks pushing up prices.
"The prospect of fresh sanctions on Russia, and moves to ban the purchase of commodities supplied by that country, is driving up prices of oil, gas, wheat, nickel, copper and others, in some cases to new all-time highs, not least because supply of many of these precious raw materials was already tight," Mould said.
Read more: How economic sanctions work
This could see the bloc plunge into a deeper into crisis as it relies on Russia for about a third of its gas, with any disruption to supply leading to potentially extreme measures like rationing.
James Cleverly, Europe minister, told Times Radio on Monday: "We import very, very little Russian hydrocarbons anyway. So that's something that we will of course, consider."
On Monday it was announced that US president Joe Biden was holding talks with Venezuela, Iran and Saudi Arabia to unlock some supply.
Mould added: "The president, and other world leaders, may be faced with an awkward choice between their commitment to the environment and their green principles and keeping a lid on energy prices and inflation by sanctioning more projects."
Reports over the weekend said the US is open to the prospects of a total ban on Russian crude despite Europe being more reluctant against such a move due to the bloc’s reliance on Russian energy imports like gas.
US secretary of state, Anthony Blinked said on Sunday that the country was holding discussions with Europe over an embargo on Russian oil and gas as the invasion of Ukraine continues.
In a note to lawmakers on Sunday, House speaker Nancy Pelosi also said that the House is “exploring strong legislation” that would ban the import of Russian oil and energy products among other steps to further isolate the Kremlin from the global economy.
Last week the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) said it was sticking to a 2021 agreement to continue gradual restoration of output that was halted during the pandemic.
The cartel will add 400,000 barrels of oil per-day to the market from April.
The OPEC+ announcement followed an agreement by the members of the International Energy Agency (IEA) to release supplies from their oil reserves.
Benchmark natural gas prices in the UK and in Europe continue to soar as Russian energy giant Gazprom (GAZP.ME), which is sending gas intermittently via the Yamal-Europe pipeline, reiterated on Monday that volumes crossing Ukraine are flowing at a high level and going as normal.
European prices jumped more than 60% to €311 per megawatt-hour, extending an unprecedented rally after prices doubled last week.
UK wholesale prices hit a new record, leaping over 70% to 800p per therm, before slipping back down to 650p.
Large amounts of gas are piped from Russia through Ukraine to the EU, meaning that disruptions pose risks of shortages and will add to inflationary pressures.
Meanwhile, the latest figures show that the average price of petrol has now risen above 155p a litre, to another record high, pushing the cost to more than £7 a gallon.
On Sunday, petrol reached 155.62p a litre while diesel now averages 161.28p a litre, according to the RAC.
"The average price of petrol across the UK has jumped by more than 4p in a week topping £1.55 for the first time ever which means a gallon costs over £7 — something which many older drivers will be struggling to comprehend," said RAC spokesman Simon Williams said. "Diesel, however, has increased by 6.5p a litre to £1.61 or £7.30 a gallon."
Gold prices neared all-time highs as investors flocked to the safe haven instead of other assets. Spot gold rose 1.7% to $2,000 per troy ounce.
"It is worth watching the gold price which is now flirting around the $2,000 per ounce level. Should Russia see a slump in income from commodity sales, there is a real chance it could sell down some of its gold reserves to help fund the war in Ukraine," Mould said.
Nickel prices were up 26% to $36,263 per tonne. The Kremlin is the third largest producer of nickel after Indonesia and the Philippines.
Wheat prices jumped by the daily limit for the sixth straight session in Chicago (ZW=F), rising 7% to $12.94 a bushel. The war threatens to cut off supplies from Ukraine and Russia, which together account for just under 30% of global wheat supplies, while supplying half of the world’s sunflower products, such as seeds and oil.