Oil, gas and food prices surged again on Monday on the back of fears of western sanctions on Russia’s energy exports that are likely to deepen the cost of living crisis.
European gas prices spiked to just over 800p per therm, an 18-fold increase in just one year. Oil briefly surged towards the highest level it has ever reached, with Brent crude briefly touching $139 a barrel before falling back to $125.
Higher prices will push up energy bills and fuel costs even further than had been forecast, and will mean that a broad range of goods are more expensive, causing a major drag on living standards and economic growth.
Figures from data firm Experian Catalist show average petrol prices in the UK reached 155.62p, while the price of diesel reached a record high of 161.28p.
Higher oil and gas prices will also deliver billions of dollars in additional revenue to the Kremlin, which relies on energy exports for much of its income.
Markets are now pricing in the prospect of much tougher sanctions on Russia, after Vladimir Putin stepped up his bombardment of Ukrainian cities, with some experts saying that an official embargo in some form is now “only a matter of time”.
Russian oil is, in practice, already facing a partial embargo as some buyers refuse to purchase it, fearing it may be subject to sanctions by the time it arrives. The main Russian oil benchmark, Urals crude, is now trading at close to a $30 discount per barrel compared to Brent.
So far, world leaders have stopped short of an official embargo, believing that the economic costs – particularly for Europe – would be too great.
Around a quarter of the EU’s oil imports and around 46 per cent of its gas came from Russia in the first part of last year, according to official statistics body Eurostat.
The UK is less reliant on direct imports from Russia for both oil and gas but prices are set internationally, meaning that a disruption to supplies would impact Britain.
There is no quick way to replace the 5 million barrels per day that Russia exports to global markets, meaning that oil prices will likely rise to the point where significant numbers of buyers can no longer afford to buy.
Oil cartel Opec last week decided not to increase its production levels beyond what had already been announced.
European leaders are weighing the prospect of more economic pain against the risk of not acting tougher on Mr Putin.
Former Foreign Office minister Sir Alan Duncan warned the UK risks falling into a “dystopian economic collapse” if Russian energy imports are disrupted further.
The Conservative MP, who once also worked as an energy trader, said “we have to pull the emergency cord” in order to sustain gas supplies across Europe, warning the UK government to be cautious “not to sanction ourselves”.
France’s finance minister, Bruno Le Maire, has said his government is working on risk evaluation of cutting off Russian gas.
The US secretary of state, Antony Blinken, said a ban over imports of Russian oil was in “very active discussion”, but sanctions against natural gas are thought to be much less likely.
Neil Wilson, chief market analyst at Markets.com, said: “It was only a matter of time before we got to the point of banning Russian oil and gas because of the escalation in the conflict and targeting of civilians. Or at least got to the point of talking about it.”
Volatile oil prices and gloomy economic predictions sparked a sell-off of companies’ shares that saw the FTSE 100 index drop 1.7 per cent on Monday morning. Falls were mirrored across Europe where Germany’s Dax tumbled 3.5 per cent and France’s Cac 40 fell 3.2 per cent.