DTN Oil

WASHINGTON (DTN) -- Nearby delivery oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange pared gains in afternoon trade Tuesday, although all petroleum contracts finished the session sharply higher after the United States and European Union announced new sanctions on Russian banks, sovereign debt and government officials in response to Russia's recognition of two separatist regions in eastern Ukraine and movement of Russian troops across the Ukrainian border.

The punitive package adopted Tuesday afternoon by western allies will likely have a limited impact on the Russian economy, according to financial analysts, suggesting tougher measures are still being held in reserve to convince Russian President Vladimir Putin to abandon his military adventures in the former Soviet satellite.

Among economic sanctions announced against Russia on Tuesday are limits on access to EU primary and secondary capital markets for certain Russian banks and companies; export and import bans on trade in arms; and curtailment of Russian access to certain sensitive technologies and services that can be used for oil production and exploration. Additionally, the Biden administration announced a total economic embargo on the newly Russia-recognized republics of Donetsk and Lugansk in eastern Ukraine, while warning that the world might be seeing "the beginning of a Russian invasion."

National Security Adviser Jake Sullivan added, "All signs look like President Putin will proceed with further plans to invade Ukraine. Over the past 24 hours, we have seen more Russian troops pulling towards the border without any other good explanation, but they are getting ready to attack."

Of potential greater consequence for the Russian economy would be the German suspension of the Nord Stream 2 natural gas pipeline which was completed last year and has awaited EU regulatory approval since late November. The $11 billion pipeline designed to carry Russian gas under the Baltic Sea to northern Germany would have sharply increased the share of Russian gas on the European energy market.

During a visit to the White House earlier this month, German Chancellor Olaf Scholz was unwilling to clearly commit to stopping the pipeline if Russia invaded.

"The situation today is fundamentally different," Scholz told reporters in Berlin on Tuesday. "That is why we must reevaluate this project."

War or not, the west is increasingly galvanized and appears more determined to turn its back on Russian gas and oil. By halting the certification process for Nord Stream 2, Berlin has accepted that Russian gas is a liability for Germany that it must contend with.

A bad situation could get much worse however, and that would depend on Putin's next move. Should he choose to march further into Ukraine, allies would contend they have no other option but to respond with harsh sanctions that could include energy. Even if he pulls back troops and sits down at the negotiating table with Ukrainian leadership, this crisis is far from over.

Putin on Monday signed a decree recognizing the breakaway republics of Donbass and Lugansk, sharply escalating tensions in the conflict with a former Soviet satellite state. Shortly after, he sent more than 180,000 troops stationed across the Ukrainian border into the Donbass region, while publicly questioning Ukraine's right to sovereignty. The situation remains fluid.

NYMEX West Texas Intermediate for March delivery expired $1.28 higher at $92.35 barrel (bbl) after trading at $96 overnight, and April futures settled the session at a $0.44 discount at $91.91 bbl. Brent April contract on Intercontinental Exchange settle $1.45 higher at $96.84 bbl. March RBOB futures surged more than 4 cents to a $2.7108 gallon settlement, and front-month ULSD futures advanced 3.73 cents to $2.8188 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com