Global oil prices have surged, with Brent crude reaching $69 per barrel and West Texas Intermediate (WTI) hitting $65, as a confluence of factors – a sharp drawdown in US crude inventories, speculation of interest rate cuts, and a weakening US dollar – propelled the market higher.
However, the primary driver behind this upward trend appears to be the escalating conflict in Ukraine and the increasingly bleak prospects for a swift peace agreement.
Hopes for an imminent end to hostilities are fading, making an easing of sanctions against Russia less likely and potentially paving the way for even tougher measures.
Uncertainties in geopolitics
A proposed meeting between Russian President Putin and Ukrainian President Zelensky, once seen as a glimmer of hope, now seems remote following recent statements from Russia.
Even US President Donald Trump, who initially expressed optimism after separate meetings with both leaders, appears to be losing patience.
He recently threatened Russia with “massive sanctions again if no progress toward a peace deal in Ukraine is made in the next two weeks.”
In contrast, US Vice President JD Vance reportedly “attested that Russia had made great concessions toward an agreement,” a statement that some analysts suggest could be part of a broader negotiating tactic.
Carsten Fritsch, commodity analyst at Commerzbank AG, noted the uncertainty surrounding the geopolitical situation:
The risks to oil supplies due to the ongoing war are therefore manifold. The price increase observed over the past week is therefore justified.
Ukraine targets Russian energy infrastructure
Amidst the diplomatic stalemate, the mutual attacks between Russia and Ukraine continue, with Ukraine increasingly focusing its efforts on Russian energy infrastructure.
Last week, the Druzhba oil pipeline, a vital artery for Russian oil exports to Europe, was repeatedly targeted by Ukrainian drone attacks, disrupting the flow of oil to Hungary and Slovakia.
A significant oil refinery in southern Russia, crucial for producing export-bound oil products, also came under attack.
Over the weekend, a drone strike hit an important Russian export port near St. Petersburg on the Baltic Sea, which also handles the refining and export of oil products.
The pumping station on the Druzhba pipeline that was previously struck is also essential for transporting oil to this attacked Baltic Sea port.
According to Bloomberg, Ukraine has launched attacks on “already eight refineries in Russia this month, cutting off about 10% of refining capacity.”
These attacks are beginning to have tangible effects within Russia, with “reports of gasoline shortages in some parts of Russia.”
In response, the Russian government is reportedly considering extending the export ban on gasoline through September.
This intensification of attacks on energy assets highlights Ukraine’s strategy to exert economic pressure on Russia, further disrupting global energy supplies, according to Commerzbank.
Russia’s export capabilities curtailed
The recent string of attacks strongly suggests that Russia’s export capabilities have been curtailed, implying that “less oil from Russia is likely to reach the world market.”
Even prior to the latest assaults, Bloomberg data indicated that Russia’s seaborne oil exports, on a four-week average, had fallen to their lowest level in almost six months.
Source: Commerzbank Research
While no immediate decline in exports via Baltic Sea ports has been observed, oil exports on the Pacific coast have decreased.
This decline “could be due to weather conditions or the impending US punitive tariffs against India, even though this is not yet reflected in Bloomberg’s figures for deliveries to India.”
Further compounding the supply concerns is the potential vulnerability of oil from Kazakhstan, which also relies on Russian energy infrastructure for its export.
While the Kazakh Energy Ministry has stated that “oil exports from Kazakhstan via the affected terminal have not been affected so far,” another critical consideration remains: Russia could “block the transit and export of Kazakh oil via its territory in the event of tougher oil sanctions against itself or its customers.”
Fritsch said:
The risks to oil supplies due to the ongoing war are therefore manifold. The price increase observed over the past week is therefore justified
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