Russia is intensifying its war against Ukraine, killing civilians, and triggering a massive refugee crisis. The U.S. has announced that it will ban imports of Russian oil from the country.
An embargo that includes all European allies would be the most effective. However, Britain announced Tuesday that it will phase out Russian oil imports by the end of the year.
Europe, unlike the United States, is heavily dependent on the energy it receives from Russia. Although the United States could replace some of the fuel it gets from Moscow, Europe cannot, at least not soon.
Furthermore, curbs to Russian oil exports could make already skyrocketing gasoline and oil prices even higher across both continents, and further squeeze customers, financial markets, and the global economic.
WHAT WILL HAPPEN WITH A U.S. BAN ON RUSSIAN OIL?
As gasoline prices rise in the U.S., the Biden administration is under increasing pressureto impose more sanctions on Russia. This includes a ban on oil imports.
At the moment, it seems impossible to establish a U.S.-European broad ban. German Chancellor Olaf Scholz stated that Germany is Europe’s largest user of Russian energy. U.S. Secretary of State Wendy Sherman suggested that the U.S. might act either alone or with a smaller number of allies.
Sherman stated that “not every country has done the exact same thing,” but that “we have all reached a threshold where it is necessary to impose severe costs that all of us have agreed to.” “
DOES THE U.S. BAN ON RUSSIAN OIL HURT MOSCOW?
Russia’s impact would be minimal. The United States only imports a small amount of Russia’s oil and does not buy any of Russia’s natural gas.
In the last year, about 8% of U.S. oil imports were from Russia. However, Russian oil imports have fallen rapidly since buyers have resisted buying the fuel.
The amount of oil that the U.S. imports is small, so Russia could sell the oil to other countries, such as China or India. However, Russia would likely have to sell the oil at a substantial discount because fewer buyers accept Russian oil.
In the event that Russia is eventually cut off from the world market, it’s possible for rogue countries like Iran or Venezuela to be “welcome back” as oil sources.
Officials from the Biden Administration were in Venezuela this weekend to discuss energy security and other issues. Jen Psaki, White House press secretary, said that officials had discussed a wide range of issues.
“By reducing some of the demand, I’m forcing the price for Russian oil down, which does reduce Russia’s revenue,” Kevin Book, Clearview Energy Partners managing director, stated. “
HOW COULD A RUSSIAN OIL BAN AFFECT PRICES?
News of the U.S. crude oil ban sent gasoline costs soaring. A gallon of regular selling was $4.17 on Tuesday.
Oil was trading at around $90 per barrel a month ago. But oil prices are now close to $130 per barrel. Some refiners were already concerned about being left without oil they could resell in the event of sanctions.
Shell announced Tuesday that it will stop buying Russian oil and natural gases, and close down its service stations and aviation fuels operations in the country. This comes just days after Ukraine’s foreign ministry criticized Shell for continuing to purchase Russian oil.
Analysts warn that gasoline prices could rise to $160 per barrel or $200 per barrel if Russian crude is not bought. This could lead to gasoline prices exceeding $5 per gallon.
A U.S. embargo against Russian oil is very attractive politically right now,’ says Morgan Bazilian, director of Payne Institute at Colorado School of Mines. However, the same politicians who support the ban “will return and hammer Biden” if gasoline prices in the United States rise.
ARE RUSSIAN IMPORTS ALREADY FALLING?
The U.S. Oil Industry has stated that it supports the goal to reduce dependence on foreign energy sources. Russian crude oil imports and products have fallen.
“Our industry took significant and meaningful steps” to end relations with Russia and limit Russian imports. Frank Macchiarola is senior vice president at the American Petroleum Institute (the largest lobbying group in the oil and gas industry).
The preliminary data from the U.S. Energy Department indicates that Russian crude imports dropped to zero over the past week of February.
WILL EUROPE GO ALONG?
Europe would feel the pain of a ban on Russian oil or natural gas. European officials are looking for ways to decrease their dependence but it will take time.
Britain’s Business Secretary Kwasi Kwarteng said that his country would use the remainder of the year for the elimination of its oil imports and petroleum products. This will “give the market and businesses more time to replace Russian imports,” which make up 8% of U.K. imports.
Germany’s economic minister Robert Habeck defended Tuesday the European decision to exempt Russian energy companies from sanctions.
Habeck stated that the sanctions were chosen to have a serious impact on the Russian economy and Putin’s regime. However, they were also chosen so that the economy and nation could keep them up for a long period of time. “
Habeck stated that “We have made ourselves increasingly dependent on Russia’s fossil energy imports over the past 20 years.” “
Russia’s Deputy Prime Minister Alexander Novak stressed the urgency of the situation, saying that Moscow would have the “every right to halt natural gas shipments through the Nord Stream 1 pipeline in retaliation against Germany for halting Nord Stream 2 pipeline. Novak also stated that no one would be benefited from the decision. Novak’s statement was a departure from Russia’s earlier assurances about not intending to cut off gas supplies to Europe.
Oil can be replaced more easily than natural gas. However, this would increase oil prices and cause them to rise because it would travel further.
Russia’s natural gas supply to Europe is unlikely to be replaced in the near future.
According to S&P GlobalPlatts, two-thirds American LNG exports were to Europe in January.
Although the U.S. could continue to drill for natural gas, it is not possible to expand its export facilities. It would take many years and billions of dollar.
