Ukraine Update: U.S. Oil Prices Briefly Soared Above $130 Amid Concerns Of Chaos In Commodity Flows

Countercurrents | Marhc 07, 2022

Values for U.S. oil soared Sunday evening, driving prices above $125 a barrel in electronic trade as discussions about a ban on Russian oil heated up following the Ukraine crisis.

Oil prices have soared to the highest level since 2008 after the U.S. said it was discussing a potential embargo on Russian supplies with its allies.

Brent crude – the global oil benchmark – spiked to above $139 a barrel, before easing back to below $130.

The price of oil jumped more than $10 a barrel Monday as the conflict in Ukraine deepened.

Brent crude oil briefly surged over $10 to nearly $130 a barrel early Monday. Benchmark U.S. crude was up nearly $9 at more than $124 a barrel.

Energy markets have been rocked in recent days over supply fears triggered by the Ukraine crisis.

Consumers are already feeling the impact of higher energy costs as fuel prices and household bills jump. Consumers around the world have seen costs jump in recent days as they feel the impact of rising wholesale energy prices.

On Sunday, the American Automobile Association said that U.S. petrol prices at the pump jumped by 11% over the past week to the highest level since July 2008.

A jump in the price of gas amid the Ukraine crisis has added to worries that annual UK household energy bills could reach £3,000.

Grains, metals and energy have surged on concerns of chaos in commodity flows.

Nestle Reopens Factories, Warehouses In Central And West Ukraine

A Reuters report said:

Nestle, the world’s largest food group, said it has reopened its factories and warehouses in central and western Ukraine in a bid to ensure essential food and drink deliveries in the war-torn country.

The Swiss-based group, which has three factories and around 5,000 employees in Ukraine, temporarily closed its operations last Thursday.

“We are trying to reopen parts of the supply chain and distribute to retailers where it is safe to do so. The latest information is this was partially possible,” a Nestle spokesperson told Reuters.

Ukraine closed its ports last Thursday after the Russian invasion, sparking fears the country will eventually face food shortages due to an inability to import goods.

Nestle, maker of iconic products like Nescafe and Kit Kat, said while most the food products it sells in Ukraine are produced locally, some raw materials used to make the goods, like coffee and cocoa, are imported.

A trader at one of the world’s largest commodity trade houses told Reuters he is having to redirect all the coffee he had headed to Ukraine as no shipping lines are prepared to transport goods there.

Food And Energy Prices ‘Likely To Surge Further’ Due To Russia Sanctions: ING

Sanctions on Russia will likely have a significant impact on the global economy, a recent ING report found.

“By now, we all know that Europe gets nearly 40% of its natural gas and 25% of its oil from Russia (this differs across countries), and is likely to be walloped with spikes in heating and gas bills, which are already soaring,” ING Global Head of Macro Carsten Brzeski wrote in a report released earlier this week. “Given that Ukraine and Russia have also been labelled as the global breadbasket, food prices are also likely to surge further. Both countries account for roughly a quarter of total global exports.”

Even so, these sanctions will have important implications for the global economy in the short run, and potentially the long run, too. With the costs of doing business increasing for many Russian institutions, certain sectors in the world economy reliant on Russian industry may also see higher prices for crucial goods. Perhaps the most potent effect that the sanctions will have on the global economy is a rise in energy prices. Russia is a powerful player in the energy sector, and several Western nations rely on Russian oil and gas.

Prices for oil and natural gas have spiked, fueling – no pun intended – higher gas prices for many in the U.S. Gas prices rose on average 8% during the past week alone, thanks in large part to the crisis in Ukraine.

Global Supply Chain Disruptions May Get Worse

The U.S. is likely to experience supply shortages as a result of restricted trade with Russia, especially in agriculture. The world’s largest country by land mass is also the world’s second-largest producer of potash – a key ingredient for major crops which farmers rely on – after Canada.

Additionally, Russia’s status as a major mining power will likely worsen shortages of important metals in the global supply chain.

Russia is a major producer of palladium, which is used in automotive production, mobile phones and even dental fillings, according to the report. Russia produces about 6% of the world’s supply of aluminum, which saw its price spike to a record high on Monday in response to the sanctions.

“The world, and particularly Europe, could be facing severe supply disruptions, undermining the industrial rebound and also the private consumption rebound expected with the end of the Omicron restrictions. Globally, a surge in commodity prices will aggravate already existing inflationary pressures,” Brzeski wrote.

War In Ukraine Will Have ‘Severe Impact’ On Global Economy, Says IMF

The International Monetary Fund (IMF) on Saturday said the war in Ukraine was already driving energy and grain prices higher.

“While the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious,” the IMF said in a statement after a board meeting chaired by Managing Director Kristalina Georgieva.

“The ongoing war and associated sanctions will also have a severe impact on the global economy,” it warned, noting that the crisis was creating an adverse shock to inflation and economic activity at a time when price pressures were already high.

It said price shocks would be felt worldwide, and authorities should provide fiscal support for poor households for whom food and fuel made up a higher proportion of expenses, adding that the economic damage would increase if the war escalated.

Sweeping sanctions imposed on Russia by the United States, European countries and others would also have “a substantial impact on the global economy and financial markets, with significant spillovers to other countries.”

Moldova and other countries with close economic ties to Ukraine and Russia were at “particular risk” of scarcity and supply disruptions, the IMF said.

Ukraine War Is ‘Catastrophic For Global Food’

A BBC report said:

The boss of one of the world’s biggest fertilizer companies has said the war in Ukraine will deliver a shock to the global supply and cost of food.

Yara International, which operates in more than 60 countries, buys considerable amounts of essential raw materials from Russia.

Fertilizer prices were already high due to soaring wholesale gas prices.

Yara’s boss, Svein Tore Holsether, has warned the situation could get even tougher.

“Things are changing by the hour,” he told the BBC.

“We were already in a difficult situation before the war… and now it is additional disruption to the supply chains and we’re getting close to the most important part of this season for the Northern hemisphere, where a lot of fertilizer needs to move on and that will quite likely be impacted.”

Russia and Ukraine are some of the biggest producers in agriculture and food globally.

Russia also produces enormous amounts of nutrients, like potash and phosphate – key ingredients in fertilizers, which enable plants and crops to grow.

“Half the world’s population gets food as a result of fertilizers… and if that’s removed from the field for some crops, [the yield] will drop by 50%,” Holsether said.

“For me, it is not whether we are moving into a global food crisis – it is how large the crisis will be.”

His company has already been affected by the conflict after a missile hit Yara’s office in Kyiv. The 11 staff were unharmed.

The Norwegian-based company is not directly affected by sanctions against Russia, but is having to deal with the fall-out. Trying to secure deliveries has become more difficult due to disruption in the shipping industry.

Just hours after Holsether spoke to the BBC, the Russian government urged its producers to halt fertilizer exports.

He pointed out that about a quarter of the key nutrients used in European food production come from Russia.

“At the same time we are doing whatever we can do at the moment to also find additional sources. But with such short timelines it is limited,” he said before the news emerged.

Analysts have also warned that the move would mean higher costs for farmers and lower crop yields. That could feed through into even higher costs for food.

Nutrients are not the only factor to consider, either.

Huge amounts of natural gas are needed to produce ammonia, the key ingredient in nitrogen fertiliser. Yara International relies on vast quantities of Russian gas for its European plants.

Combined with higher shipping rates, sanctions on Belarus (another major potash supplier) and extreme weather – this prompted a big jump in fertilizer prices last year, adding to a surge in food prices.

It will increase food insecurity in poorer countries, he adds.

“We have to keep in mind that in the last two years, there’s been an increase of 500 million more people that go to bed hungry… so for this to come on top of it is really worrying.”

Energy Bills Could Reach £3,000

Another BBC report said:

UK energy bills could reach as high as £3,000 a year as oil and gas prices surge amid the Ukraine conflict, the energy industry has said.

Average UK petrol prices have hit a new record.

The RAC said petrol reached £1.52 a litre for the first time, while diesel rose to a high of 155.79p.

Emma Pinchbeck, the chief executive of the energy industry body Energy UK, said: “It’s a really worrying time for both customers and industry.

She said that if oil prices remain at elevated levels “you can expect bills to be anywhere between £2,500 and £3,000 in October depending on the tariffs people have and what happens in the market”.

The prices that people pay for energy and fuel depend on wholesale markets, which can go down as well as up.

But average UK household energy bills are already set to rise to around £2,000 in April when the price cap is increased.

RAC spokesman Simon Williams, said with oil prices rising and the value of the pound at $1.33 “further price rises are inevitable in the coming days and weeks”.

European Stock Markets

European stock markets slipped as the Russian invasion continued.

The UK’s FTSE 100 share index closed down 2.5%, while the main markets in France and Germany ended down 1.8% and 2.1% respectively.

Energy Prices Are Pushing Up The Cost Of Living In The UK

The UK rate of inflation – which shows the cost of living – rose at a 30-year high of 5.5% in January and is expected to rise above 7% once the new energy price cap is introduced in the spring.

Asia stock markets fell on Monday, with Japan’s Nikkei index 3.6% lower and the Hang Seng in Hong Kong down by 4%.

In the UK, the average price of petrol has risen above £1.50 a liter, according to the RAC.

In recent days, the cost of gas in Europe and the UK has hit record levels as fears persist that Russian supplies could be reduced.

America’s Sanctions On Russia Are Hurting The U.S. And Taxpayers Will Bear The Cost, Says Citadel’s Ken Griffin

While the West’s retaliatory sanctions squeeze Russia’s economy, they will have grave repercussions on the U.S. that its citizens will pay for, warned Citadel CEO Ken Griffin.

The primary concern, according to the hedge fund billionaire, is that America is weaponizing the U.S. dollar.

“When we put on the table the possibility that your dollars will become seized, or that you cannot move dollars, we are telling the rest of the world to embrace other currencies in their portfolio, and we diminish the value of the dollar as the reserve currency,” Griffin said in a Bloomberg TV interview.

Even though the sanctions feel good in the short-term, the long-term impact won’t be as positive, he added.

Eventually, a shift away from dollar-denominated assets around the world could result in steeper costs for the federal government.

“American taxpayers are going to pay for this in the form of higher interest rates on our debt. It hurts our country in a profound way,” Griffin said.

Additionally, he also said the sanctions are hindering the U.S.’s ability to be the leading technology developer in the world.

U.S. Ammunitions Company To Send 1M Bullets To Ukraine

An Arizona ammunitions company this week announced that it will send one million bullets to Ukraine.

The company, AMMO, Inc., said that it will send the bullets without requesting payment in return, according to a local Fox News station.

“First of all, I believe in the Second Amendment. I also believe in freedom and democracy,” AMMO, Inc.’s CEO, Fred Wagenhals, told Fox 10 Phoenix.

He said he is currently waiting for the government to approve the shipment, but already has his private plane ready to make the delivery, Fox 10 reported. It is not yet known if the government will approve.

Remmington Arms also added that it plans to send ammunition to the country, making the announcement in a tweet on Friday.

The West Is Behaving Like A Bandit, Says Kremlin

A Reuters report said:

The Kremlin said on Saturday that the West was behaving like a bandit by cutting economic relations over the conflict in Ukraine but that Russia was far too big to be isolated as the world was much larger than just the United States and Europe.

Kremlin spokesman Dmitry Peskov told reporters that the West was engaged in “economic banditry” against Russia and that Moscow would respond. He did not specify what response there would be but said it would be in line with Russian interests.

“As you understand, there must be a corresponding response to economic banditry,” Peskov said.

“This does not mean Russia is isolated,” Peskov told reporters. “The world is too big for Europe and America to isolate a country, and even more so a country as big as Russia. There are many more countries in the world.”

Peskov noted that channels for dialogue between Moscow and Washington still existed.

He said that if the U.S. imposed sanctions on Russia’s oil and gas exports then it would give a considerable jolt to world energy markets.

Foreign companies, he said, would one day return to Russia, although some would find others had taken their places.

“Russia … has an interest in being attractive for investment. Yes, now is hardly a time when we can talk about being attractive for investment, but times change quickly,” Peskov said.

“A time of surging economic growth will replace this time. And a time when these same companies will again return to the market, and will be more than interested in catching up on what they’ve missed out on and restoring their positions.

“In some areas, we will really wait for them [the companies]. In other places we’ll wait for them less as their places will be taken by companies from other countries.”

War May Speed China Moves to Insulate Against Dollar, Says Powell

A Bloomberg report said:

Federal Reserve Chair Jerome Powell said the Ukraine war could have the effect of accelerating China’s moves to develop alternatives to the current dollar-dominated international payments infrastructure.

Powell was questioned Thursday in a Senate Banking Committee hearing on how China might view the U.S.-led efforts to isolate Russia’s economy, especially by damaging its ability to use the dollar.

Senator Jack Reed, a senior Democrat who has focused on China’s rise as a global power, told Powell at the hearing that Beijing will start thinking about “how they can avoid that fate if they get into a similar circumstance” as Russia. China “will look very closely” at the “whole issue of the dollar as the medium of exchange to the world,” said Reed, who chairs the Armed Services Committee.

Reed asked Powell if he was watching the issue and whether he’d report back to Congress on developments and share views on what he thinks might happen. “Yes to all of the above,” Powell said.

Powell said that China has “for some time” been working on the reserve-currency status issues, and been developing a messaging system for international payments that’s like the SWIFT system. The U.S. and European nations have moved to bar Russia from using SWIFT, which is vital to international payments in dollars.

“That’s been going on for some time,” Powell said of Chinese efforts to insulate themselves from what Reed described as “the same thing that they are observing in Russia now.” Powell added, “But this may change the trajectory.”

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