LONDON, Feb 22 — Oil prices surged close to US$100 (RM418) per barrel today as major crude producer Russia prepared to send troops into two breakaway regions of Ukraine, sparking Western nations to ready economic sanctions against Moscow.

After heavy falls at the open, European stocks edged into positive territory as the Kremlin said it remained open to all diplomatic contact over Ukraine.

"The old adage goes that the market hates uncertainty and while that has clearly been evident at times over the last couple of weeks, there’s no doubt that investors continue to be tempted back in at the slightest hint of diplomacy winning the day,” said market analyst Craig Erlam at Oanda trading platform.

On Wall Street, the three main indices opened lower after a three-day holiday weekend, with the Dow shedding 0.6 per cent.

Asian stock markets had earlier ended their sessions with heavy falls.

Brent North Sea crude oil reached US$99.50 per barrel, the highest level in seven years.

At around 1330 GMT, it pulled back to just below US$98, still a gain of around 2.4 per cent compared with late yesterday.

"The intensifying crisis between Russia and Ukraine has raised concerns about the supply disruptions that would ensue as sanctions look set to cripple Russia, the world’s second largest oil exporter and the world’s top natural gas producer,” noted Victoria Scholar, head of investment at Interactive Investor.

German Chancellor Olaf Scholz said he was suspending the Nord Stream 2 pipeline project with Russia in response to Moscow’s recognition of breakaway regions Donetsk and Lugansk.

Ukrainian President Volodymyr Zelensky had demanded an immediate halt to the project, set to pipe Russian natural gas to Germany via the Baltic Sea.

Zelensky said Russia must be punished for its recognition Monday of Ukraine’s two separatist-held regions with "immediate sanctions” that include "the complete stop of Nord Stream 2”.

It comes as the United States, Britain and the European Union prepared to launch economic sanctions on Russia.

"Our response will be in the form of sanctions, whose extent the ministers will decide,” EU foreign policy chief Josep Borrell said.

Russia’s recognition of the breakaway regions of Ukraine will meanwhile "strongly increase” economic uncertainty for the EU, the bloc’s economy commissioner Paolo Gentiloni said.

High energy prices

"Whatever happens next, one thing is clear: energy prices are unlikely to come back down in a hurry,” said ThinkMarkets analyst Fawad Razaqzada.

"Consumers’ disposable incomes have already been stretched by surging inflation, and if oil and other energy prices continue to rise, this could hurt the economic recovery, and raise concerns about a possible recession,” he added.

Russian troops were believed to be deploying into Donetsk and Lugansk in eastern Ukraine, after Russian President Vladimir Putin issued decrees ordering his army to assume "peacekeeping” functions in the separatist territories.

The jump in oil prices is compounding worries about inflation around the world, with the US Federal Reserve coming under intense pressure to tighten monetary policy to prevent prices running out of control.

That has in turn battered equity markets in recent months.

Russia’s MOEX index plunged eight per cent at the open, having lost 10 per cent yesterday, but clawed back much of the losses to stand down 1.2 per cent in late afternoon trading.

Haven investment gold climbed past US$1,900 an ounce.

Key figures around 1330 GMT

London — FTSE 100: UP 0.3 per cent at 7,507.88 points

Frankfurt — DAX: DOWN 0.2 per cent at 14,700.51

Paris — CAC 40: UP less than 0.1 per cent at 6,793.23

EURO STOXX 50: UP less than 0.1 per cent at 3,988.86

New York — Dow: DOWN 0.6 per cent at 33,870.26 

Tokyo — Nikkei 225: DOWN 1.7 per cent at 26,449.61 (close) 

Hong Kong — Hang Seng Index: DOWN 2.7 per cent at 23,520.00 (close)

Shanghai — Composite: DOWN 1.0 per cent at 3,457.15 (close)

Brent North Sea crude: UP 2.4 per cent at US$97.75 per barrel

West Texas Intermediate: UP 3.3 per cent at US$94.11 per barrel

Euro/dollar: UP at US$1.1339 from US$1.1337 late Monday

Pound/dollar: DOWN at US$1.3548 from US$1.3609

Euro/pound: UP at 83.70 pence from 83.33 pence

Dollar/yen: UP at 115.14 yen from 114.82 yen — AFP