In Wake of Russia-Ukraine Conflict, Higher Oil Prices Support Oil and Gas PDP ABS
In response to the escalating aggressive military actions in the Russia-Ukraine conflict, a number of different sanctions have been placed on Russia, including removed access from the global financial system and global trade. With the latest sanction announced on March 8, 2022, President Biden instituted a ban on the importation of crude oil, natural gas, and coal from Russia. The order also prohibits any new investments into Russia's energy sector and forbids the flow of capital to foreign companies financing the country's energy production. Likewise, Canada and the U.K. have also imposed their own bans on oil imports from Russia (Britain plans to phase out oil purchases from Russia by the end of this year). As a result of the disruption of energy exports, oil prices, which are already at heightened levels, could potentially lurch higher, further exerting cost pressures on industries that have been under stress from the Coronavirus Disease (COVID-19) pandemic. Nonetheless, oil and gas Proved, Developed, and Producing (PDP) asset-backed securities (ABS) could benefit from the surge in oil and gas prices because the unhedged production benefits from higher commodity prices.
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