IHS Markit's Yergin warns that the world could face an energy crisis similar to the 1970s.

• According to Daniel Yergin, vice chairman of IHS Markit, Russia's invasion of Ukraine could have caused an energy market disruption on a scale comparable to major oil crises in the 1970s.
• The financial sanctions imposed by the U.S. and its allies on Russia have caused disruptions in the sales of Russian oil, as banks and buyers are cautious about violating the punitive measures.
• According to Yergin, this crisis could be as severe as the Arab oil embargo and the Iranian revolution of the 1970s.

According to Daniel Yergin, vice chairman of IHS Markit, Russia's invasion of Ukraine could have caused an energy market disruption on a scale comparable to major oil crises in the 1970s.

The backlash against Russian crude from banks, buyers, and shippers has been set in motion due to sanctions by the U.S. and allies on Russia's financial system.

Yergin, an author and energy market historian, stated that although Russian energy was not subject to sanctions by the U.S. and other countries, there could still be a significant reduction in Russian barrels from the market. The country exports approximately 7.5 million barrels of oil and refined products daily, he pointed out.

The supply crisis that is currently unfolding will cause significant disruptions in logistics, forcing individuals to scramble for barrels, according to Yergin. This crisis is not only a logistical issue but also a payment crisis, and its magnitude could rival that of the 1970s.

Yergin stated that governments must offer clarity to avoid a worst-case scenario.

Yergin stated that about half of Russia's exports are received by NATO members, and some of that will be disrupted.

Wariness toward Russian oil

According to Yergin, there are "de facto" sanctions in place that are preventing Russian oil from entering the market, despite energy not being explicitly sanctioned. Buyers are hesitant to purchase Russian oil due to the backlash from banks, ports, and shipping companies that fear violating sanctions.

If Russian oil remains disrupted, JPMorgan predicts that 66% of it will struggle to find buyers and crude prices could reach $185 by the end of the year.

Yergin stated that the current crisis could be as severe as the Arab oil embargo and the Iranian revolution, which were significant oil shocks in the 1970s.

In 1973, Middle Eastern oil producers cut off supply from the U.S. and other Western countries in response to their support of Israel during the Arab-Israeli war. This led to a shortage of oil, causing Americans to line up at gas stations to buy skyrocketing gasoline. Additionally, the 1978-1979 Iran revolution resulted in the overthrow of the Shah of Iran, causing another shock to the global oil market.

Russia's Ural crude has fallen sharply compared to the international benchmark Brent crude, causing oil majors like ExxonMobil and Chevron to exit their Russian ventures.

According to Yergin, a significant reputational issue is emerging, with companies refusing to conduct business with Russia. These companies have invested heavily in Russia's oil operations, which have taken years to develop and employed hundreds of people.

In just one week, Vladimir Putin has dismantled what he had spent 22 years constructing, an economy that was tightly interconnected with the global economy. As a result, Russia is now disconnected from the global economy.

An approaching disruption

OPEC+ is continuing its current production plans, returning about 400,000 barrels a day to the market each month until it reaches its target in June, according to Yergin, who said the disruption is coming when the market is already tightly supplied.

The increase in European natural gas prices has added to the difficulties faced by Russia's customers. Europe is the largest market for both Russian oil and gas.

When Russia invaded Ukraine last Thursday, oil prices were already increasing. Brent had surpassed $116 per barrel before retreating due to rumors that Iran might strike a deal to resume its nuclear agreement. This could potentially result in the return of 1 million barrels of Iranian oil to the market.

According to industry analysts, determining the extent to which Russian oil will be impacted is challenging. Meanwhile, the White House has stated that although there are currently no sanctions targeting energy, they remain a possibility.

The annual CERAWeek energy conference, hosted by IHS Markit, will take place in Houston next week. Several energy companies, including Exxon Mobil, Total, and BP, will be represented, and a major focus of the conference is expected to be the replacement of Russian barrels.

According to John Kilduff, partner at Again Capital, the estimated loss of 2 to 3 million barrels a day from the market could cause the price of Brent to increase by $20 per barrel, as estimated by Bank of America.

Kilduff anticipates that Russian oil will keep flowing to China, while Beijing stated it will not impose sanctions on Russia.

Analysts predict that crude oil transported by ships is more likely to be in demand.

This time, we are imposing our own oil cutoff. It's a self-inflicted embargo," Kilduff stated. "This time, it's not the suppliers taking action, but rather a buyers' strike. ... If you can't finance it and can't get it paid for, there's no way the Russians will sell it.