Russia moved on Jan. 24 to assert that it remains a "reliable guarantor of European energy security", a day after the US and UK governments began withdrawing embassy staff from Kiev amid concerns that Ukraine -- a key transit hub for oil and gas -- could be invaded.
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"Russia was a reliable guarantor of European energy security, even at the most difficult moments of our relations, and in the most difficult moments of confrontation between East and West, Russia seamlessly fulfilled its contractual obligations," President Vladimir Putin's press secretary, Dmitry Peskov, told reporters in Moscow Jan. 24.
Peskov's assurances come after Urals grade Russian crude climbed to its highest level in almost a year last week, with Urals CIF Rotterdam at Dated Brent minus $0.75/b and Urals CIF Augusta at Dated Brent minus $0.45/b Jan. 21.
US officials have said repeatedly in recent weeks that their concerns over a potential military incursion by Russia into Ukraine could trigger fresh sanctions against the Russian energy sector and financial interests overseas. The State Department ordered on Jan. 23 the evacuation of "non-essential" staff from the US embassy in Kiev, a move followed by key US ally Britain a day later.
Potential economic measures in response to the possibility of the Russian army crossing the border into Ukraine could include more restrictions on the major Nord Stream 2 gas pipeline, designed to ship Russian gas to Germany via the Baltic, which has been subject to significant delays in recent years due to sanctions risks. However, S&P Global Platts Analytics sees any disruption to energy supply unlikely.
"We do not anticipate Russia voluntarily cutting off large energy supplies to Europe, given the lack of a major disruption in 2014-15, its desire to remain a dependable supplier, and the fact that such a move could unite the US and Europe," Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics, said in a political risk special report published Jan. 18.
However, analysts have also highlighted the possibility of the US restricting Russian companies from accessing US dollar transactions as another potential sanctions risk. The vast majority of Russian oil is traded in US dollars. This measure was first mooted in 2014, when previous sanctions were introduced against Russia over its role in the conflict then in Ukraine. Subsequently, Russian oil companies have pushed to increase trade in alternative currencies, and added mechanisms in contracts to allow for payment in different currencies if necessary.
"This has been practiced for some time by the likes of Rosneft, I think Surgutneftegaz has also had such an option in contracts for quite some time. It depends on how far the sanctions go, if they're about cutting off access to the US banking system for Russian exporters then this potentially could exempt them from blanket sanctions concerning other currencies like the euro," George Voloshin, head of the Paris branch of Aperio Intelligence, told S&P Global Platts.
US officials in Moscow did not immediately respond to a request for comment.
Concerns over security of supply arise from Russia's importance as a key supplier of crude to Europe's refineries and natural gas.
During the last year, Urals CIF Rotterdam has averaged Dated Brent minus $1.90/b, with Urals CIF Augusta at a 20 cents/b premium. The Urals current high represents a rise of 60% compared with its average over the last year and is 77% higher than its lowest point in mid-July.
Rival grades have climbed proportionately higher during the recent rally for crude in Europe. Medium sweet Libyan Es Sider grade -- sometimes used to substitute Urals Med barrels -- is trading at Dated Brent minus 30 cents/b, 78% higher than its average over the year.
Sweet grades in the Mediterranean are trading much higher than sour grades such as Urals, making it unattractive to switch slates at present.
Urals crude is a staple for refiners in Northwest Europe and the Mediterranean. Key buyers include Germany, Italy, the Netherlands, Poland, Finland, Lithuania, Greece, Romania, Turkey and Bulgaria.
Any further delays to Nord Stream 2 arising from the political situation on Ukraine's border could also impact European gas prices, which have reached record highs in recent months, analysts said.
S&P Global Platts assessed Dutch TTF at Eur80.275/MWh, down from a record high of Eur182.775/MWh on Dec. 21. Prices are significantly higher than January 2021, with the price assessed at $19.75/MWh on Jan. 21, 2021.
Prices have risen as European gas imports from Russia's state-controlled Gazprom have dropped considerably this winter. On Jan. 17, Gazprom said that its exports to non-CIS countries were down 41% on the year between Jan. 1-15.