LONDON – A decision by Western allies on Saturday to block certain Russian banks from the SWIFT payments system is likely to lift oil prices well above $100 a barrel as risks with trading Russian oil spike, analysts say.
SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a secure messaging system that facilitates rapid cross-border payments, making international trade flow smoothly.
Russian exports of all commodities from oil and metals to grains will be severely disrupted by the new Western sanctions, traders and analysts said.
Oil prices jumped on Monday on escalating sanctions against Russia over its invasion of Ukraine, which in turn led President Vladimir Putin to put his country’s nuclear deterrent on high alert.
Brent jumped back above $100 a barrel, initially surging more than $7, as the nuclear alert and bank payment constraints heightened fears that oil shipments from the world’s second-largest producer could be disrupted. Russia accounts for about 10 percent of global oil supply.
Brent crude futures were up $3.95, or 4 percent, at $101.88, after hitting a high of $105.07 a barrel in early trade. Last week the benchmark hit a more than seven-year high of $105.79 after Russia’s invasion of Ukraine began.
US West Texas Intermediate (WTI) crude futures were up $4.55, or 5 percent, at $96.14 a barrel, after hitting a high of $99.10 early in the day. WTI climbed to as much as $100.54 last week.
At least 10 oil and commodities traders, who spoke to Reuters on condition of anonymity, said flows of Russian commodities to the West will be severely disrupted or halted for days if not weeks until clarity is established on exemptions.
Amrita Sen from consultancy Energy Aspects said that Brent crude prices will definitely go back above $100 and probably return to the highs of $105.
“But I wouldn’t rule out a quick move to $110 a barrel,” she added.
Oil prices last jumped above $100 a barrel when Russian forces invaded Ukraine on Feb. 24, with Brent rising above $105 a barrel for the first time since mid-2014.
Prices dropped back below $100 a barrel by Friday.
“While trying to exempt energy transactions, SWIFT can still cause significant disruption to energy trade flows in the near term, at least until buyers switch to alternatives like Telex or other systems,” Sen said, adding that trade on other commodities will be much harder without exemptions.
The measures, which include restrictions on the Russian central bank’s international reserves, are aimed at preventing President Vladimir Putin from using $630 billion in central bank foreign currency reserves for the invasion of Ukraine and to defend a plunging rouble.
But the allies have not yet said which banks would be targeted, with analysts saying if the list includes Sberbank, VTB, and Gazprombank that the impact on the Russian economy and the ability to do business with Russia could be huge.
