The Impact Of Ukraine’s Invasion On Petroleum Investment

Ukraine’s invasion caused an increase in petroleum prices, causing the oil prices to increase to over $110, already inflated, hitting the economy globally. The news of the eastern Europe conflict is alarmingly frightening and shocking. From an economic perspective, investors trying to make beneficial investment decisions can get distressed by the high increase in oil, gas, and petroleum prices and other necessary staples in the goods market like wheat.

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A military invasion was launched in Ukraine by Russia on 24 February 2022. The invasion caused an increase in fuel prices, causing the oil prices to increase to over $110, already inflated, hitting the economy globally. 

As the dispute in Ukraine worsened and the mounting calls for severe sanctions against Russia, the value of the shares went rapidly lower, and the price of a barrel of crude oil increased up to more than $10.

The increases in oil, gas, and petroleum prices occurred when the United States hinted at other countries to increase the oil, gas, and petroleum supply as it banned buying Russian energy supplies. On the other hand, later on, Monday, the European authorities dismissed the plan.

It was stated by the German chancellor, Olaf Scholz, that Russia’s energy supplies were intentionally acquitted from embargoes by Europe because it could not fulfill its oil, gas, and petroleum supply demands in any other way at the moment.

Despite Russia’s invasion of Ukraine, the giant energy shell purchased Russia’s crude oil and defended its decision. It stated that to maintain the energy supplies of Europe, it was unavoidable to buy crude oil from Russia.

As an impact of Ukraine’s invasion, it is feared that the prices of many everyday items from food to petrol, which was already increasing rapidly for 30 years, could be pushed higher.

The Economic And Financial Effects Of Russia’s Invasion Of Ukraine

After Saudi Arabia, Russia is the second biggest producer of crude oil and fulfills almost a third of Europe’s energy supply demands.

From the stock market to the gas station, you can quickly feel the economic and financial effects of Russia’s invasion of Ukraine across all parts of life. Recently, anyone who tried to fill their car with gas has seen and personally experienced Russia's invasion's economic and financial impact.

According to AAA report from a week ago, the average price per gallon of gasoline went up to 5% from the regular price of petrol, $3.728.

Looking on a broader scale, since the conflict started in Eastern Europe a week ago, the average cost of Brent Crude Oil increased up to 18% from the regular price and reached its highest level in nearly a decade.

Already striving with the highest inflation rates in 40 years, many businesses, investors, and consumers are now facing pressure due to these price swings.

The stock markets are now getting drastically affected as the conflict continues. Before pairing their losses, the leading stock exchanges in France and Germany sank more than 4% in early trading, closing at 1.3% and 2% down in values, respectively.

However, despite these complex and alarming circumstances, investors looking to invest their money in the stock market for novel work can still find good opportunities.

Some experts believe that governments and companies might shift away from reliance on fossil fuels in the long term due to this recent European conflict. The Government of Germany has already announced a  proposal to expedite the growth of the wind and solar energy sector.

This endeavor can potentially lead the investors to invest in a carbon-free economy by boosting the extensive use of sustainable energy sources.

Consumers now face high prices at the pump in their heating, gas, and electricity bills. The prices of all goods and services will also increase rapidly due to high oil and petroleum prices, causing the inflation probabilities to fuel more quickly.

Maciej Kolaczkowski said that the cost of virtually all goods and services would be increased as fossils fuels face high prices, further fuelling inflation expectations.

In the video below by TED, you can get the overall idea of Ukraine's invasion and how it's impacting everything. Yuval Noah Harari has explained this matter in a very comprehensive way. Let's check out.

Impact On Oil And Gas Market 

Again due to the conflict, it is not easy to predict which way the oil, gas, and petroleum market will go. However, maneuvered by war, it looks like the prices of fossil fuels are poised to increase rapidly combined with tight market fundamentals.

The global oil and gas markets are encountering massive distress that no one has seen in centuries due to Russia’s invasion of Ukraine. Brent Crude Oil and West Texas Immediate Crude Oil future contracts are now reaching levels that have not been attained since 2014.

Almost 18% of the world’s supply of natural gas and nearly 11% of the world’s oil supply is provided by Russia. It is feared that if the conflict continues and the export of oil and gas stops altogether, the world might face pressure to make up for this loss of oil and gas supply.

In response to Russia’s invasion of Ukraine, The United States and Europe put some sanctions on Russia to squeeze its financial sector while allowing it to continue exporting oil, petroleum, and gas supply.

Russia is such a crucial player in the oil petroleum and gas supply market that the Western powers extensively carved out an exception for their oil and gas supply because they were aware of the importance of that probable source of oils being cut off.

However, investors fear that oil and gas supply issues will be felt throughout the market as Russia’s invasion of Ukraine continues.

Large Economies Planning To Exit Russia

Another evidence of the extensive fallout caused by this European dispute and following sanctions is that several large oil and petroleum companies of the United States and Europe have declared to curtail or curb their investments in Russia.

Plans were announced on Monday by BP plc (BP) and Shell plc (SHEL) to get rid of their respective investments in Rosneft, a state-owned oil producer in Russia, and the Sakhalin 2 liquefied natural gas (LNG) project. ExxonMobil (XOM) also announced Russia's exit after following the above news.

On the other hand, almost 60 million barrels of oil are being released to the market from the strategic reserves of the OECD countries, which is nearly equal to 12 days of Russia’s oil export.

Moreover, at the same time, it was stated by Frances Total Energies (TTE) that it would not exit Russia but would not put new capital in investments.

As there are fewer global ties to Russia’s oil market, the oil, petroleum, and gas markets may face additional pressure due to the steps taken by the companies mentioned above.

However, the current situation can present an opportunity where countries and businesses look for ways to restrict the susceptibility of fossil fuels by making sustainable energy investments to boom in the environment.

Opportunity For Renewable Energy 

Due to the increase in fuel prices and the strain on oil, petroleum, and gas markets, some analysts are now wondering if the timing is good for the government and businesses to make a concerted effort to push for the broad expansion and use of renewable energy sources.

Adapting renewable energy sources as the fuel prices increase due to oil and petroleum crises is not new for anyone.

In the 1970s, during the Yom Kippur War, the united states and all the other countries that sided with Israel faced a prohibition on oil by OPEC. Due to this embargo, the gasoline shortages and increase in oil and petroleum prices became a common practice in the life of consumers.

With oil and petroleum prices increasing rapidly and gasoline supply short, companies must adapt to survive these difficult circumstances.

Shifting from the use of large gas-guzzling vehicles of the 1950s and 1960s, the rise of fuel-efficient compact cars in the United States was one of the most notable effects.

As the European conflict continues, a similar change can still occur due to the increase in oil and petroleum prices.

Due to the recent dispute, Europe is rethinking its dependency on imported fossil fuels. To substitute petroleum and gas imported from Russia in large quantities, accelerated renewable energy sources and nuclear and locally mined coal might be used.

A plan to extend the nuclear plant's life and use locally mined coal is already being formulated by Germany. The plan might be followed by other countries as well.

The economics of electric or hydrogen vehicles might be accelerated due to the high increase in oil, gas, and petroleum prices. However, the transition is not that simple and might take years, if not decades. For instance, since 2013, the would demand in Norway has declined by 10% as 65% of all the vehicles sold in 2021 were electric.

Several exchange-traded funds focused on renewable energy sources reached high prices after Russia started to invade Ukraine, hinting that investors expect a new geopolitical environment by the acceleration of clean energy activity.

The Importance Of Oil And Gas Is Still High.

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Even after the fuel price increases and the clean energy stocks expands potentially, the transition from fossil fuels to clean renewable energy will not be quick and easy. The fact that we are still very much relying on oil, gas, petroleum, and other fossil fuels to heat and power the investors must remember the world.

In particular, Europe’s oil, petroleum, and gas supply are considerably fulfilled by the Russian fuel market. Nearly 40 percent of natural gas and almost 25 percent of crude oil is supplied to Europe by Russia.

European Union would need to find an immediate alternative to fulfill its oil, petroleum, and gas demands if the continent loses its supply of oil, gas, and petroleum from Russia.

Whether the United States or Saudi Arabia fulfills the continent’s supply of fossil fuel is still unknown.

Wrapping Up:

The news of the eastern Europe conflict is alarmingly frightening and shocking. From an economic perspective, investors trying to make beneficial investment decisions can get distressed by the high increase in oil, gas, and petroleum prices and other necessary staples in the goods market like wheat.

However, investors can still find numerous opportunities despite these disturbingly unfortunate circumstances. As oil and petroleum prices are increasing along with other fossil fuel prices reaching high levels, you can invest in energy stocks or take advantage of a carbon-free future by building a portfolio of clean energy investments.