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Oil prices broke through US$100 a barrel and kept going after President Vladimir Putin launched a military attack on Ukraine. European stocks went in the opposite direction, and the Russian market got absolutely hammered, with some flagship companies down by half or more.

Shortly before dawn Thursday, European time, Brent crude, the international benchmark, began to surge and was up 8.5 per cent by late morning, taking it to US$105 a barrel, a new 52-week high and one of the biggest one-day increases on record.

American oil prices, measured by the West Texas Intermediate benchmark, were up by a similar amount. Bullish oil investors have made a killing on relentlessly rising oil markets in the last year or so. At one point during the height of the COVID-19 pandemic in 2020, when economies were in free-fall everywhere, oil futures prices turned negative.

Natural gas prices also shot up Thursday, with benchmark Dutch wholesale prices up as much as a shocking 40 per cent. Much of Europe’s gas comes through a network of pipelines that go from Russia via Ukraine.

The unprecedented single-day price increase suggests those supplies could be in jeopardy if the war damages Ukraine’s pipelines, though there were no reports of any supply disruptions yet to Western Europe. On Thursday, Gazprom, the Kremlin-controlled gas giant that holds a monopoly on Russia’s gas exports, said gas deliveries through Ukraine to Europe were continuing.

But on Tuesday, as war seemed imminent, Germany withdrew the approval process for the Gazprom-controlled Nord Stream 2 gas pipeline, which runs from Russia to northeast Germany. It now appears unlikely that the completed US$11-billion pipeline, which was designed to double Germany’s gas import capacity, will receive a German licence to deliver gas.

Gold was up about 3 per cent, taking it to a year high, as investors fled to safety and the European equity markets sank. In London, the benchmark FTSE 100 index lost 3 per cent on heavy volume. Markets in Germany, whose economy is heavily exposed to the Russian economy, and Italy, which also has close ties to Russia, were down by almost 5 per cent.

“News early this morning that Russia has launched a major military offensive across Ukraine has shocked the world,” ING Economics said in a note Thursday morning. “[Foreign exchange] markets had shift to a benign interpretation of events – perhaps that the Russian incursion would stop purely in the rebel-held areas. That thesis has been blown away by developments overnight.”

But no stocks fell as much as those in Russia, as investors took the view that the next round of sanctions could severely damage their business models. Russia’s dollar-denominated RTS index lost 40 per cent on Thursday morning – the worst fall on record.

The three dozen Russian companies that have secondary listings on the London Stock Exchange suffered unprecedented falls. State-controlled Sberbank lost more than 50 per cent. VTB, another bank, was down by 20 per cent.

Surprisingly, the shares of Russia’s biggest energy companies – Gazprom, Rosneft and Lukoil – fell by a quarter to more than a third in spite of the soaring energy prices. Each of those companies will face tougher sanctions.

The Russian ruble fell to a record low, trading at 89.60 to the U.S. dollar at one point. It recovered somewhat later in the morning after the Russian central bank said it would intervene to shore up the currency.

Oil prices are now up 56 per cent in a year. The last time oil climbed above US$100 was in 2014. Some analysts said oil could go to US$120, or even higher, if a wider war leads to oil delivery constraints through pipeline damage or sanctions and countersanctions.

Russia is the world’s third-largest oil producer and the United States and Europe are expected to announce tough new sanctions later on Thursday, building on the packages revealed earlier in the week.

In the United States, the focus will shift to the Menendez bill winding its way through Congress. The bill’s sponsor, Bob Menendez, the Democratic chairman of the U.S. Senate Foreign Relations Committee, has promised a “mother of all sanctions” bill designed to cripple the Russian economy.

U.S. President Joe Biden said he would meet with his Group of Seven counterparts later today to discuss a new array of sanctions to be placed on Russia. The new package could include restricting or ending Russia’s access to foreign currency or even eliminating Russian banks’ access to the SWIFT interbank payments system, the heart of the global funds transfer system.

The energy and gold prices increase came after Mr. Putin said it would conduct a “special military operation” to “protect” the Donbas region in Eastern Ukraine, adding that Russia does not plan to occupy Ukraine. A short time later, explosions could be heard in Kyiv, Odessa and several other Ukrainian cities.

The extent of the military assault, including the damage inflicted on crucial infrastructure such as military bases, was unknown early Thursday, suggesting that markets will remain highly volatile Thursday and Friday as investors scrambled to judge the severity and geographic extent of the conflict to come.

Rising oil prices will worry governments and central banks by stoking already high inflation. Goldman Sachs said that a US$10 a barrel increase in oil boosts U.S. headline inflation by 20 basis points (100 basis points equals 1 percentage point).

If oil prices keep rising, the United States may be tempted to release oil from its strategic reserves to try to bring down prices or at least slow their rise