In the memo, ESAI Energy points out that, little to no crude oil is exported from Ukraine’s Black Sea ports. Meanwhile, the conflict is unlikely to spill beyond Ukraine’s borders and effect other oil flows.
‘There are no grounds to anticipate an escalation of the conflict,’ said ESAI Energy Principal Andrew Reed.
Forces presumed to be Russian established control of Crimea. But thus far, there is no evidence that Russia’s military will enter other areas of Ukraine. Ukraine’s leadership is focused on resolving the crisis through diplomatic channels.
The West’s response will consist of a combination of sanctions against Russia and the prospect of political isolation, while providing political and economic support for Ukraine. Thus, the conflict might not even widen across Ukraine, let alone spill over its borders.
The potential for instability within Ukraine to affect oil supply to world markets is limited, according to ESAI Energy. ‘Little to no oil is exported by sea from Ukraine,’ explains Reed.
‘Less than 30,000 b/d of Caspian crude is exported by sea from Ukraine, Russia discontinued crude exports from Ukraine’s ports.’
That leaves the 300,000 b/d of crude flowing through the southern leg of the Druzhba pipeline to the Czech Republic, Slovakia, Hungary and Bosnia-Herzegovina. For now, there are no grounds to anticipate a disruption in this crude flow.
Much more is at stake in terms of natural gas supply through Ukraine, though available information suggests that natural gas delivery via Ukraine to Europe has not been disrupted. Gazprom will raise the natural gas price for Ukraine, making it even more difficult for Ukraine to make payments for its gas imports.
That raises the prospect of Russia cutting supply to Ukraine for nonpayment, which could in turn lead to the disruption of supply to Europe. Such a disruption could lead to increased use of fuel oil as a substitute for natural gas in Central Europe, among other things. In this sense, the fallout of the Ukraine conflict for the oil market will be mostly confined to regional product markets.
