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The crisis in Ukraine has dominated the headlines in the past two weeks and will likely continue to do so until some form of settlement is reached. In the meantime, it has further enhanced the bullishness on the energy markets.

On Feb. 24, Brent was above $100 a barrel for the first time in 7 years, hitting $106 a barrel, before falling back and closing at $99. The reversal occurred in the middle of that day as all indications were that sanctions imposed on Russia would not target its energy sector.

The setback was also reinforced by a statement on a coordinated release of crude oil from the Strategic Petroleum Reserves (SPR) by the IEA countries.

However, as sanctions strengthened, financial institutions started to refuse to back Russia-related transactions and, as most of the Russian seaborne crude oil exports have become untouchable for buyers, oil prices resumed their upward trend.

On March 4, after a highly volatile week, oil prices closed at their highest level since 2008, with WTI touching $116 a barrel and Brent more than $118 a barrel. This is despite the fact that the sanctions against Russia did not include SWIFT restrictions and bans on energy and energy payments

Russia is one of the world’s largest petroleum exporters, sending 4.5 to 5 million bpd of oil and 2.5 to 3 million barrels per day of refined products to other markets. This is a significant volume, accounting for about 8 percent of world supplies, and there is practically nothing to replace this.

Energy Intelligence estimates that around 1.5 million bpd of crude and 1 million bpd of refined products are not making their way to the market.

In addition, the crisis puts Black Sea trade at risk, and with 2 million bpd of Russia, Kazakh and Azeri oil passing through the Novorossiysk terminal on the Black Sea coast daily, any disruption would have a direct upward risk premium.

Also at immediate risk is the transport of Russian oil via the Druzhba pipeline, which can carry one million bpd of exports to Europe.

So Russia is one of the main players in the oil market. In 2016 it joined the Declaration of Cooperation with OPEC. Both ��������Ƶ and Russia are key members of the OPEC+ group, which plays a vital role in maintaining the stability in the global oil markets.

The DoC agreement is still intact. The cooperation within the framework of OPEC+ was discussed last week during a telephone conversation between Crown Prince Mohammed bin Salman and Russian President Vladimir Putin.

With regard to the impact of the Ukraine crisis on energy markets, the Crown Prince reiterated the “Kingdom’s keenness to maintain the oil market’s balance and stability, and stressed the role of the OPEC+ agreement in this and the importance of maintaining it.”

In the near term, the crisis will continue driving the bullish trajectory in oil prices and the potential responses to ease this are likely to come from the supply side. There are few options available, but each has its own challenges and limitations.

One of these options is the supply response from OPEC+. On paper, the group is carefully adding 400,000 bpd each month, but real production is well behind the plan. In addition, after a record-short meeting on Wednesday, the group decided to leave the plan as it is and did not mention the war in Ukraine.

The meeting noted “that current oil market fundamentals and the consensus on its outlook pointed to a well-balanced market, and that current volatility is not caused by changes in market fundamentals but by current geopolitical developments.”

Another supply source is the potential increase in Iranian production if sanctions on the country are lifted. However, the US State Department warned that there are still a number of unresolved issues and they need to be sorted quickly as Iran actively continues to conduct nuclear development.

Iranian oil is not expected to enter the market in the first half of 2022. Even when it does, it cannot match Russian supplies in terms of quantity.

The release of stocks from the SPR will also contribute to the supply side. On March 1, 2022, IEA announced an international coordinated release of 60 million barrels of crude oil from emergency stock to moderate prices and ease any potential shortfalls as a result of the crisis.

The release, which on paper may seem big, is a drop in the ocean compared to the Russian crude and refined products exports that are at risk.

The demand side response is also important but will not likely become noticeable until later this year. According to Rystad Energy, the crisis in Ukraine could result in as much as 1 million bpd of oil demand being removed from the global market. Oil demand in both Ukraine and Russia is set to plunge if an end to the conflict does not materialize quickly.

To sum up, oil markets experienced one of the most volatile weeks in recent history, and there is no sign of things slowing down anytime soon. The situation will remain in this state for a while, not least because fundamentals are still imbalanced with tight supply and strong demand.

In addition, the global commercial oil inventories are at their lowest level since 2014. These market fundamentals indicate serious consequences in the event of large-scale interruptions to the Russian oil exports.

So the catastrophic scenario of oil at $130 or $150 a barrel no longer looks extreme. The situation is critical, and it remains to be seen if further sanctions will be imposed on Russian energy exports, possibly causing a breach of the resistance level of $120 a barrel, which will have a disastrous impact on the world economy.

The US and European economies may face a high risk of recession this year as the crisis has severely disrupted supply chains and caused inflation to accelerate at the fastest rate since the 1970s.

• Dr. Namat Al-Soof is an Iraqi oil expert with long experience in upstream and market analysis. He held senior analyst positions at OPEC, IEF in Riyadh, and OPEC FUND for International Development. Currently, he is a consultant to a number of companies in the oil industry.