Oil prices have increased recently as tension in Ukraine has escalated and raised concerns about the risks of disruption in Russian energy exports. There is a risk that the security situation in the east Ukraine will worsen even further ahead of the 25 May elections. As Nordea notes, Russia is as important an oil exporter to Europe (of both crude and refined products) as it is a gas exporter, and the consequences of a cut in Russian oil supplies could be as grave since the global oil market has little back-up capacity to lean on. As a result, a halt in the oil deliveries from Russia to Europe will spark a sharp spike in oil prices (potentially to $150/bbl) and in a worst case scenario an oil crisis and European recession (and major slowdown in global growth) and US shale oil or an SPR release will prevent the spike.
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