Ceasefire in Ukraine – Energy Market and Macro Implications

The election of Donald Trump has placed a negotiated settlement to the Russian invasion of Ukraine on an accelerated timeline – although a sustainable peace still appears far away.The abrupt shift in US foreign policy has been a bruising experience for Ukraine and considering both Presidents’ former careers in television, it was perhaps fitting that the clear strains in the relationship between Trump and Zelenskyy were broadcast live to the global press from the Oval Office. This marked a low point in the US-Ukraine relationship, culminating in the US decision to halt aid and military intelligence sharing in early March. Pushed into disaster management mode, Ukraine soon agreed to a 30-day ceasefire, putting the ball in Russia’s court.Holding the battlefield advantage, Putin has limited incentive to compromise and will be reluctant to move away from maximalist war aims. The critical question is therefore how Trump responds to this stalling. Broadly, the options are tending towards Putin’s maximalist views to reach an agreement quickly or tightening sanctions to force Russia to make concessions over a longer period. Whilst a difficult call, our base-case ceasefire scenario reflects our view of a continuation of the current status quo. Trump, favouring a quick deal continues to follow what is effectively a bilateral negotiation process with Putin, with Ukrainian interests discounted. This has substantial implications for the nature of any potential Trump peace. Both the US and EU have been aligned in terms of sanctions policies targeting Russia, but divergence in foreign policy over the past month has led to questions as to whether sanctions policy could also diverge.Reviewing the current energy sanctions regime – Europe holds the cards. Russia’s oil flows have been diverted due to the EU’s import ban, rather than the G7 price cap. Natural gas imports were never sanctioned by the EU, with cuts instead triggered by Russia. The return of these volumes would depend on the political willingness of Europe to normalise economic ties with Russia, which will be limited if Ukraine does not receive concrete security guarantees. As such, we see limited energy price impact under our base-case – Russian pipeline gas will not return to Europe, whilst oil flows will still be displaced towards alternative markets.We have also developed an alternative, Russia energy flood scenario which assumes full economic normalisation with Russia. In this case, European gas prices could be €20/MWh lower than our business-as-usual case in 2026, with Brent $18.5/bbl lower assuming Russia’s return to the market is associated with a collapse in the current OPEC+ deal. We also discuss the macro impacts of our two scenarios on a variety of energy exposed regions.