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Oil prices surged past $130 a barrel on Tuesday, their highest since 2008, after President Joe Biden announced that the US would ban crude, gas and coal imports from Russia, intensifying its sanctions on the world's second-largest energy exporter after its military offensive in Ukraine.
Brent, the global benchmark for two thirds of the world's oil, hit $131.28 a barrel, and West Texas Intermediate – the gauge that tracks US crude – jumped to $126.74 at 8.12pm UAE time.
The US move is part of Washington's strategy to try to freeze Russia out of markets and isolate its economy.
“The United States is targeting the main artery of Russian economy,” Mr Biden said on Tuesday.
“We will not be part of subsidising [Russian President Vladimir] Putin’s war.”
Russia supplies about 40 per cent of Europe's gas, while its crude accounts for about 3 per cent of US oil imports, equal to about 200,000 barrels a day.
The European allies of the US have not announced a similar ban on Russian oil. However, the UK is expected to announce a gradual ban on Russian oil imports later today but exclude gas supplies, Politico reported quoting Whitehall sources.
"The unilateral aspect of that is the most important as far as markets are concerned, which is why oil prices are only 5 per cent to 6 per cent higher today, rather than 15 per cent to 20 per cent," said Craig Erlam, a senior market analyst at Oanda.
"Still, it's a bold move from the US, even if Russian imports make up a relatively small number. It's another step towards the West turning its back on Russia and leaving it isolated in the world. Europe's move will be slower but the debt raising is a big first step towards something similar."
On Monday, Russia said it retains the option to cut natural gas supplies to Europe through the Nord Stream 1 pipeline if the US and its EU allies ban its crude imports.
Such a move would shake energy markets further and exacerbate inflationary pressures globally.
Russia could stop the flow of gas through pipelines from the country to Germany after Berlin decided to stop the opening of the new Nord Stream 2 pipeline, Russian Deputy Prime Minister Alexander Novak, who is also in charge of energy affairs said in a televised speech on Monday.
“We understand that in connection with the unfounded accusations against Russia regarding the energy crisis in Europe and the imposition of a ban on Nord Stream 2, we have every right to take a mirror decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline,” Mr Novak, formerly energy minister, said.
“So far, we are not making this decision. No one will benefit from this. Although European politicians are pushing us to this with their statements and accusations against Russia,” he said.
An energy war will exacerbate inflationary pressures on the global economy where prices for food, commodities and metals have increased.
The UN index of food prices rose 4 per cent in February from January this year and was up 24 per cent from the same month a year ago, marking a record high.
Gold, the precious metal that is a traditional safe haven and hedge against inflation, jumped up to $2,076.0 an ounce on Tuesday on the Chicago Board of Trade at 7.57pm UAE time.
On Tuesday, the International Energy Agency's executive director Fatih Birol said the 61.7 million barrels of oil reserves released to the market by members of the Paris-based global energy authority last week only account for 4 per cent of its reserves.
In an interview with Bloomberg TV Mr Birol said the agency was ready to release more oil to the market to ease surging energy prices.
Last week, the IEA proposed a 10-point plan to reduce the EU’s reliance on Russian natural gas. The new proposals include halting new gas supply contracts with Russia, replacing Russian supplies and accelerating the introduction of renewable energy as well as increasing power generation from bio-energy and nuclear plants, among others.
Introducing minimum gas storage obligations to increase the resilience of the gas system, speeding up the replacement of gas boilers with heat pumps and accelerating energy efficiency improvements in building and industry are also included in the proposal.
In 2021, the EU imported 155 billion cubic metres of natural gas from Russia, which accounted for about 45 per cent of EU gas imports and close to 40 per cent of its total gas consumption.
The EU should seek alternative sources of supply from the US, Azerbaijan, Qatar and Algeria to replace the Russian gas, Mr Birol said last week.