Oil prices surge as Ukraine-Russia tensions climb

Oil prices are climbing on fears that the Ukraine-Russia crisis will disrupt supply chains across the world.

Futures of Brent crude, the international benchmark, reached a seven-year high of almost $98 (£72) on Tuesday after Russia recognised breakaway rebel regions in Ukraine’s east as independent states.

The UK and several western allies have threatened sanctions on the country.

Russia is the second largest exporter of crude oil after Saudi Arabia.

It is also the world’s top producer of natural gas.

The border tensions may have “substantial implications”, Sue Trinh of Manulife Investment Management said.

Sanctions forcing Russia to supply less crude or natural gas would have “important impact on the global economy,” she added.

Western powers fear Mr Putin’s recognition of the rebel-held areas paves the way for Russian troops to officially enter Ukraine’s east.

The self-declared People’s Republics of Donetsk and Luhansk are home to Russia-backed rebels who have been fighting Ukrainian forces since 2014.

Russia’s move effectively ends peace talks in the region, which has been under a tenuous ceasefire for years.

‘Deep sea of red’

Equity investors were just as jittery about the developments which come as the global economy is still recovering from the impact of the coronavirus pandemic.

Japan’s Nikkei 225 index slipped over 2%. The Shanghai Composite was 1.4% lower by mid-day.

Futures for the S&P 500 retreated 1.6%. That of the Dow Jones index fell 1.4%, while Nasdaq 100 futures gave up 2.2%.

The futures contracts, made by investors before stock markets open, hint at how they think the indexes will perform.

A possible war is at the forefront of investors’ minds, said Song Seng Wun, an economist at CIMB Private Banking.

Mr Song said the markets were a “deep sea of red”.

“There are fears that freight and shipping costs, that are already at elevated levels, will climb higher because of demand-supply disruptions,” he told the BBC.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, said it was unclear if Russia’s moves would trigger a full-blown conflict.

“For now, sanctions appear to be the first port of call,” he said. (BBC)