Britons should brace for a record surge in energy and petrol prices as well as the cost of living, officials and experts have warned, after Russian President Vladimir Putin sent troops into eastern Ukraine sparking western sanctions.
Europe’s dependency on Russia for oil and gas, as well as key commodities such as wheat and aluminium, mean the threat of a protracted war and tough sanctions could see prices across the board reach unprecedented highs, just as countries are struggling post-pandemic.
The RAC warned motorists on Tuesday that the crisis will push petrol prices past the “grim milestone ” of £1.50 per litre, at a time when the cost of fuel has already reached a record high.
The comments came after oil prices closed in on $100 a barrel, a seven-year high, while power and coal prices also rose, due to concerns over the reliability of supplies.
A record increase in the world’s gas prices over the last six months, meanwhile, has already seen UK’s industry regulator Ofgem issue an energy price cap rise of 54 per cent starting in April.
The dramatic standoff involving Russia, which supplies a tenth of the world’s oil and 40 per cent of Europe’s natural gas imports, will likely see that a cap rise in the near future.
“Regardless of what is going to happen the trend is up. The only way is up for everything which will be devastating for low to middle-income households,” said Andreas Krieg, a security specialist at King’s College London, who was in Qatar for a global gas summit that opened on Monday where Ukraine was discussed in depth.
He warned of a “perfect storm” created by the crisis in Ukraine and countries struggling after the pandemic-induced recession.
“Separate to gas, heating and petrol, oil is going to affect the entire supply chain. There is nothing that is immune to a price increase of potentially 20 to 30 percent of where we are.”
“We have massive inflation of prices already but this crisis would give it another push.”
Andrew Lipow, president of energy consultancy Lipow Oil Associates, told The Independent that because Russia and Ukraine were major world supplies of commodities from wheat to aluminium, war and sanctions will also nudge prices higher for the foreseeable future.
“For the consumer, it is not only energy price hikes but higher prices of everything else. The trend is up until tensions subside and the market is convinced there will be no supply disruption,” he said.
Russ Mould, investment director at AJ Bell, added this was occurring as countries accumulated record amounts of debt during Covid and were struggling with high inflation rates.
“Inflation is at a 30-year-high in the UK, and the Bank of England’s predictions were made before oil prices reached what they have,” he said, adding that surge in oil prices was the most worrying trend.
“In 2006 to 2007 the price of oil blew up the world’s economy. It provided the final push to the wobbling, that is what we all need to be aware of now.”
The West has been left largely to guess Putin’s true intentions as he has built up a force of up to 190,000 troops on Ukraine’s borders, recognised the separatist areas of the countries, and authorisation of "peacekeeping" troops into Ukraine.
While his actions have so far fallen short of the massed large scale invasion that many have predicted, there was enough concern about the sabre-rattling in Putin’s rambling televised address on Monday where he characterised the Ukrainian leadership as illegitimate and the Ukrainian state as artificial, wrongly wrested from Moscow after the fall of the Soviet Union.
And so international markets were shaken by the prospect of a disruption to energy supplies and fears of war sending the price of Brent crude, the standard for international oils, surging to $98 per barrel, the highest level since 2014.
On Tuesday RAC’s fuel spokesman Simon Williams said this would translate into record-high fuel prices.
"Russia’s decision to invade Ukraine is already causing oil prices to rise and will undoubtedly send fuel prices inexorably higher towards the grim milestone of £1.50 a litre,” Williams said.
“The price of oil is likely to go above 100 US dollars and stay there on the back of traders fearing future disruptions in supply.”
Karen E Young, director of the Program on Economics and Energy at the Middle East Institute, said the conflict, the lack of investment in the sector and potential disruption to Russian supply could see an oil spike as high as $150 per barrel which would be “devastating for the global economy.” “It would hurt NATO members as much as it hurts Russia,” she said.
The instability has spurred countries to impose punitive measures on Russia. Britain sanctioned five Russian banks and three billionaires ahead of expected sanctions to be announced by US president Biden and the European Union.
Germany, which is Russia’s biggest consumer for natural gas, meanwhile halted certification of the Nord Stream 2 pipeline from Russia, a controversial plan which many had hoped would boost the supply of gas to Europe, therefore, bringing down prices for consumers. However, critics said it increased Europe’s reliance on Russia.
It already had an impact on Tuesday: Benchmark European natural gas surged by 13 percent, and the British equivalent jumped by 8 per cent according to Bloomberg.
Saudi Arabia has signalled it is not willing to pump more oil and won’t push for changes to an agreement with Russia and other producers that has kept a lid on oil production levels.
At the summit in Doha, Qatar’s emir said major gas exporting nations were working to ensure "credible and reliable" supplies but also stopped short of promising to increase exports.
Putin in written remarks for the gas summit said Russia would keep global gas supplies flowing.
"Russia aims to continue uninterrupted supplies, including liquefied natural gas, to the world markets, improve related infrastructure and increase investments in the gas sector," he added.
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