Save for later Print Download Share LinkedIn Twitter The specter of US and European sanctions on Russian crude sales sent benchmark oil prices soaring, as the market continues to try to digest the impact of financial sanctions that have caused many to shun Russian volumes.The market's opening reaction to comments over the weekend from Western politicians regarding possible energy sanctions was swift, with Brent briefly spiking to its highest levels since mid-2008 at $139.13 per barrel before deflating back to the mid-$120/bbl range. In London, Brent crude for May delivery climbed by $5.10 on Monday to settle at $122.21/bbl. In New York, April West Texas Intermediate (WTI) on Nymex gained $3.72 to end the session at $119.40/bbl. Physical markets continue to signal that prices may climb even higher, with dated Brent trading close to $130/bbl. The forward curve for both benchmarks is in steepening backwardation — May Brent settled a whopping $10.51 above its three-month counterpart. Any actual energy sanctions could dramatically tighten physical markets that are already struggling to deal with the reluctance among buyers to touch Russian crude and a lack of readily available alternative supplies. Since last week buyers have already shunned about 1.6 million barrels per day of crude and at least 1 million b/d of refined product shipping via sea from Russia, according to Energy Intelligence estimates, either due to reputational risk, or to avoid payments or shipping and insurance issues stemming from financial sanctions against Russia.“The recent spike in Brent future prices are due to fears that the US and Europe might ban imports of Russian oil as well as the recent outage in Libyan production,” said an Asian trader.Energy Sanctions Remain ControversialUS Secretary of State Antony Blinken told reporters Sunday that he was in “very active discussions with our European partners about banning the import of Russian oil to our countries,” but rallying support in Europe, which is more dependent on Russian oil and gas will be more difficult.Germany’s Foreign Minister Annalena Baerbock deemed the move as “pointless,” saying that sanctions could not be sustained in the long term if her country has no resources left to generate electricity.Germany’s exposure to Russian petroleum is about 30% according to International Energy Agency data, only behind Hungary at 45 %, Finland, Lithuania and Poland at 68%-69% and Slovakia at 79%.Dutch, German and Finish refineries are also geared toward the processing of Russia’s Urals crude as their base feedstock, and finding substitutes in a tight market could prove extremely difficult.“In places like Germany, where some refineries run 100% Urals and others are having it as the largest grade in their diet, it is awfully hard to come by other crude when you have a delay or disruption in the supply of any other crude stream,” said Mike Muller, head of Vitol Trading in Asia, adding that Libya was a case in point.A Russian refining source disparaged the move as costless for the US, and one that may just benefit them if they can finally sell more of their shale oil and gas to Europe.“All those sanctions or restrictions are being paid [for] by the European or Russian people while they’re being initiated by the US government. And everybody is so OK with it in Europe. I’m very much surprised by that,” the refiner said.Double WhammyTo this point, the US and EU have been adamant that they were not trying to target Russian oil and gas flows with sanctions that would hurt global consumers.Markets are now concerned that outright sanctions could be in the cards and come on top of the self-sanctioning by European oil buyers that has already thrown European supply into disarray.A strict embargo on Russian oil imports could potentially impact Kazakhstan's oil exports which travel via Russia. Kazakh volumes total more than 1.5 million b/d, and the light, sour crude has fewer replacement alternatives than Urals.All crude tanker fixtures from Russia after Mar. 15 are for Kazakh crude shipments. As of today, there are no vessels chartered for Primorsk and just four chartered from Ust-Luga in the Baltic.If deliveries through the Druzhba pipelines to Central and Eastern Europe refiners were targeted, those landlocked countries could have no other crude supply options, which could erode support among European nations unless there was some system of exemptions.Stockout RiskThe turmoil in physical and paper markets has refineries turning to the volumes of oil they keep on hand but ongoing disruptions could increase the danger of those supplies running out — something traders and downstream executives refer to as a “stockout” situation.Many international oil firms are trying to avoid Russian crude but Shell was pilloried last week for buying a cargo of Russian Urals at record discounts, but traders say the company may have had no choice if it wanted to keep its downstream operations running.“I'm convinced it would have definitely been a stockout,” Muller said, reminding that a month ago, he was already warning that the physical market was only one refinery outage or disruption away from seeing prices go through the roof.“I think you will probably find that other companies will engage with governments and get the OK to buy as well,” he said, an option that a full embargo would de facto nip in the bud.Shell essentially admitted as much in a statement issued over the weekend.“Cargoes from alternative sources would not have arrived in time to avoid disruptions to market supply,” the company said. “We will continue to choose alternatives to Russian oil wherever possible, but this cannot happen overnight because of how significant Russia is to global supply.”The UK major pledged to allocate its estimated $15 million-$20 million profit to charity but pointed out the difficulty in securing enough non-Russian crude to keep Europe running.Despite the impacts of port closures and self-sanctioning, some Russian oil volumes are still being taken by European refiners.And Europe’s import terminals are still accepting Russian ultra-low-sulfur diesel even as public anger over Russia’s war on Ukraine brings regional trade in Russian crude to a virtual standstill.Diesel brokers remain skeptical about the market’s desire to turn away from Russian barrels and the scope for alternatives. “I think until the government ban it, it won't change,” says one London-based broker.