Used primarily as a bargaining tool to encourage Putin to return to the negotiating table regarding the Russia-Ukraine conflict, markets are seriously questioning the effectiveness of recent sanctions.
While predictably, the Kremlin made comments shortly after the announcement to suggest that the domestic Russian oil industry would be unaffected by new American sanctions, markets are now taking these comments more seriously.
This goes double for Vladimir Putin, who went on record to say he would not be “cowed” by other nations into making concessions about Ukraine, while simultaneously boasting about the success of new nuclear technology.
While it is understandable that Trump wants to target Russian fossil fuels, with the three largest companies by market cap in Russia, Lukoil, Rosneft, and Gazprom, all being energy corporations, it will take more supply-side risk to secure higher pricing for WTI, which is on pace for its worst yearly performance since 2020.
As expected, the level of risk premium priced into WTI markets has reduced significantly this week, not only due to the above, but also because of the market’s inherent nature: sudden news events often cause the markets to overreact.
