The European benchmark price for oil could hit US$140 per barrel if energy becomes a weapon in the escalating conflict over Ukraine, according to an analyst at Capital Economics who sees multiple ways such a disruption could play out.

Ukraine announced plans on Wednesday for a 30-day state of emergency. The declaration comes amid reports of Russian troops advancing into pro-Moscow separatist regions in Ukraine’s east. On Monday, Russian President Vladimir Putin insisted in a video address that his country’s interest and security are non-negotiable. However, Putin has also said he remains open to a “diplomatic solution.”

The European Union, the U.S. and the UK are among the foreign powers currently imposing sanctions on Russia.

“It is not in the economic interests of either Russia or the West to use trade in energy as a weapon against each other, but that is not to say it won’t happen,” Edward Gardner, a commodities economist at London-based Capital Economics, wrote in a research note on Tuesday. “If energy flows were disrupted, we think oil prices could settle at around US$120 to US$140 per barrel, before coming back down as trade flows re-route.”

Brent crude continued to track towards US$100 per barrel on Wednesday, climbing 0.48 per cent to US$97.30 as at 11:30 a.m. ET.
Gardner says Russia and the West have “significant energy ties and a mutual dependence.”
“Either side could throw economic caution to the wind and directly target energy flows. This could happen if Russia conducted a large-scale invasion of Ukraine, and Europe and the U.S. put aside their concerns about energy security. Or it could happen if Russia decided to respond aggressively to Western sanctions,” he wrote.

“Alternatively, energy flows could be disrupted by the conflict itself. For example, oil and gas pipelines running through Ukraine could be damaged, while exports of oil (and coal) through the Black Sea could fall if ships were not able to freely transit or if they purposefully avoided the area.”
Source: Yahoo Finance