The world could be on the brink of an energy crisis rivaling the 1970s, says IHS Markit’s Yergin

Russia’s Ukraine invasion could have set in motion an energy market disruption on the scale of major oil crises in the 1970s, according to Daniel Yergin, vice chairman of IHS Markit.

Moscow is one of the world’s largest oil exporters. Sanctions by the U.S. and allies on Russia’s financial system has already set in motion a backlash against Russian crude from banks, buyers and shippers.

Yergin, also an author and energy market historian, said even though Russian energy was not sanctioned by the U.S. and other countries, there could be a large loss of Russian barrels from the market. The country exports about 7.5 million barrels a day of oil and refined products, he noted.

“This is going to be a really big disruption in terms of logistics, and people are going to be scrambling for barrels,” Yergin said. “This is a supply crisis. It’s a logistics crisis. It’s a payment crisis, and this could well be on the scale of the 1970s.”

He said strong communications between governments imposing the sanctions and the industry could head off a worst case scenario. “Governments need to provide clarity,” Yergin said.

He noted that members of NATO receive about half of Russia’s exports. “Some share of that is going to be disrupted,” he said.

Yergin said there are “de facto” sanctions working to keep Russian oil from the market, even though energy was not specifically sanctioned. Buyers are wary of Russian oil because of pushback from banks, ports and shipping companies that do not want to run afoul of sanctions.

“This could be the worst crisis since the Arab oil embargo and the Iranian revolution in the 1970s,” said Yergin. Both events were major oil shocks in that decade.

In 1973, Middle Eastern oil producers cut off supply from the U.S. and other Western countries in retaliation for assisting Israel during the Arab-Israeli war that year. Oil was immediately in short supply, and Americans lined up at gas stations to buy skyrocketing gasoline. The other shock was the result of the 1978-1979 Iran revolution, which led to the overthrow of the Shah of Iran.

Oil majors, like BP and ExxonMobil have said they are exiting Russian ventures. The price of Russia’s Ural crude has fallen sharply, compared to the international benchmark Brent crude.

“What we haven’t seen before is the big reputational issue as well, companies not wanting to do business with Russia,” said Yergin. Oil companies are giving up major investments, where they may have spent years developing operations and employed hundreds of people in Russia.

“Vladimir Putin in a week has destroyed what he spent 22 years building, an economy that was basically integrated wit the global economy. Now what’s happened is Russia is unplugged from the global economy,” he said.

Yergin said the disruption is coming when the market is already tightly supplied. OPEC+, an alliance between OPEC, Russia and others, decided Wednesday to continue their current production plans. They are returning about 400,000 barrels a day to the market each month until they reach their target in June.

Also adding to the pain for Russia’s customers has been the spike in European natural gas prices. Europe is the biggest customer for both Russian oil and gas.

Oil prices were already rising when Russia rolled its tanks into Ukraine last Thursday. Brent was trading above $116 per barrel Thursday before backing off amid speculation that Iran may reach a deal to re-enter its nuclear deal. That could bring 1 million barrels of Iranian oil back to the market.

Industry analysts say it is difficult to tell how much Russian oil will be affected. The White House said while there are no sanctions on energy, they are on the table.

IHS Markit hosts the annual CERAWeek energy conference in Houston next week. Executives from many energy companies, including Chevron, ExxonMobil, Total, Occidental Petroleum and Conocophillips, will be speaking, and a major topic at the conference is expected to be how Russian barrels will be replaced.

“I think you’re talking about losing two to three million barrels a day,” said John Kilduff, partner with Again Capital. Bank of America has estimated that for every million barrels lost from the market, the price of Brent could rise by $20 per barrel.

Kilduff said he expects Russian pipeline oil to continue to flow to China. Beijing said it will not join sanctions against Russia.

Analysts have said oil that is carried by ships is more likely to be wanting for buyers.

“This time we’re cutting off the oil ourselves. It’s a self-inflicted embargo,” said Kilduff. “It’s a buyers’ strike this time, not suppliers acting out… If you can’t finance it and you can’t get it paid for there’s no way the Russians are going to sell it.”