European energy prices soared after Russian forces invaded Ukraine, prompting Western governments to vow further sanctions to punish Moscow.

Benchmark Dutch gas futures rose as much as 62%, the most since at least 2005, in their fourth-straight daily advance. German power for March jumped as much as 58%. Coal and oil also surged. 

Russia began a full-scale invasion of Ukraine after President Vladimir Putin vowed to “demilitarise” the country and replace its leaders. The attacks triggered the worst security crisis Europe has faced since World War 2 and threaten to worsen the continent’s energy-supply crunch, already the deepest in decades. 

The government in Kyiv declared martial law and pleaded for international support including harsher sanctions, with President Volodymyr Zelenskiy calling on citizens to take up arms. Nato said it is deploying additional land and air forces to member countries near Ukraine.

US President Joe Biden is expected to address the crisis again later on Thursday, according to a White House official. Leaders from the Group of Seven countries spoke by phone as countries grapple with how to respond. The UK announced a package of sanctions against Russia, while the US and EU promised more penalties.  

Energy crisis

The crisis puts fuel supplies in Europe at further risk. The continent depends on Russia for more than a third of its gas supplies, and about a third of those flows are shipped via Ukraine. Low inventories of the fuel last year sent prices to record levels, and volumes from Russia have been curbed since the second half 2021. 

“In the extreme risk case, which we would define as one that has a lasting and material negative impact on global growth, the conflict could escalate to a level that pushes Western nations to accept a disruption of Russia’s energy flow,” analysts from UBS Group AG said in a note Thursday.

Russian gas exporter Gazprom PJSC said Thursday its shipments to Europe via Ukraine were normal. Russian gas flows through Ukraine, which have been low in recent months, actually rose on Thursday amid higher prices, data from Slovakian gas transport operator Eustream   show. They’re also set to increase on Friday.

Earlier on Thursday, Ukraine’s gas transit operator said it was operating normally and that there had been no accidents. Austrian refiner OMV   said supplies of natural gas from Russia have continued in line with the company’s contracts with Gazprom. 

Benchmark Dutch gas futures settled 51% higher at €134.316  a megawatt-hour, the biggest one-day gain on record. German power for March traded up 50% at €297.29  a megawatt-hour by 5.35pm.

European coal for 2023 gained as much as 24%, while oil surged above $105 a barrel for the first time since 2014.  

Sanctions package

UK Prime Minister Boris Johnson announced a package of sanctions, including measures to block Russian companies from raising finance in London. It also targets more than 100 Russian individuals and entities. 

EU ambassadors unanimously backed a broad Russia sanctions package that had been drafted in the event of a Ukraine invasion, a senior diplomat told Bloomberg News. European leaders were set to discuss ways to toughen the package when they meet Thursday evening. 

Germany earlier this week suspended its certification of the Nord Stream 2 pipeline that would ship gas directly from Russia to Europe. The US on Wednesday added the project to its sanctions on Russia. The pipeline is unlikely to start in the medium term because of the Russian attack, Germany’s Vice-Chancellor Robert Habeck said Thursday. 

Any sanctions curbing Russia’s access to foreign currency could upend commodity markets from oil and gas, to metals and food. Traders are waiting to see what further penalties will bring — particularly any measures related to oil and gas. Ukrainian foreign minister Dmytro Kuleba renewed calls to cut off Russia from the Swift international payments system. 

“If the West were to decide to cut Russia off from Swift, payments for Russian gas supplies would become impossible,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies. “That would be a cause for contractual force majeure leading to a halt in supplies, with dramatic consequences for European consumers from physical availability and price perspectives.” 

Bloomberg News. More stories like this are available on bloomberg.com