New York — As Russia escalates its war in Ukraine, killing civilians and sparking a massive refugee crisis, the US president Joe Biden announced on Tuesday a ban on imports of Russian oil. Russia’s critics have said that imposing sanctions on its energy exports would be the best — and perhaps the only — way to force Moscow to back down.
A full embargo would be more effective if it included European allies, who are also desperate to end the violence in Ukraine and the danger Moscow poses to the continent. However, it is unclear whether all of Europe would participate in an embargo, although Britain announced on Tuesday that it would phase out Russian oil imports until the end of the year.
Unlike the United States, Europe is heavily dependent on hydrocarbons it imports from Russia, the world’s second-biggest crude exporter behind Saudi Arabia. While the United States can replace the relatively small amount of oil it receives from Moscow, Europe cannot, at least not in the short term.
Furthermore, any curb on Russian oil exports could push already high oil and gasoline prices higher on both continents, further hurting consumers, businesses, financial markets and the global economy.
This is a look at the situation:
What will happen to the US ban?
As gasoline prices in the United States continue to rise, the Biden administration has faced mounting pressure to impose more sanctions on Russia, including by banning oil imports.
For now, a broad ban from the United States and Europe seems elusive. On Monday, the German Chancellor Olaf Scholz made it clear that his country, the largest consumer of Russian energy in Europe, does not plan to join any ban. In response, US Under Secretary of State, Wendy Shermanhinted that the United States could act alone or with a smaller group of allies.
“Not all countries have done exactly the same thing,” Sherman said, “but we have all reached a threshold that is necessary to impose the serious costs that we have all agreed to.”
Does the US ban impact Moscow?
The impact on Russia probably will be minimal. The United States imports a small amount of Russia’s crude exports and buys none of its natural gas.
Last year, about 8% of US imports of oil and petroleum products came from Russia. Together, imports totaled the equivalent of 245 million barrels in 2021which was about 672,000 barrels of oil and oil products a day, but Russian oil imports have been declining rapidly as buyers shunned the fuel.
Since the amount of oil the United States imports from Russia is modest, Russia could sell that oil elsewhere, perhaps China or India. However, it would probably have to sell it at a steep discount, because fewer and fewer buyers are accepting Russian oil.
If Russia were to be left out of the world market, countries like Iran and Venezuela could be “welcomed back” as sources of oil.commented Claudio Galimberti, an analyst at Rystad Energy. These additional sources could, in turn, stabilize prices.
A team of Biden administration officials was in Venezuela over the weekend to talk about energy and other issues, the White House press secretary said. Jen Psaki. He added that officials discussed a number of issues, including energy security.
“By eliminating some of the demand, we are forcing the price of Russian oil down and that reduces Russia’s income”he claimed Kevin Bookmanaging director of Clearview Energy Partners. “In theory, it is a way to reduce what Russia earns for each barrel it sells, maybe not much, but something. The bigger question is whether there will be more pressure from the other side of the Atlantic.”
How might the ban affect prices?
News of the US ban on Russian crude sparked a surge in gasoline prices, with a gallon (3.7 liters) of regular gasoline selling for an average of $4.17 on Tuesday.
A month ago, oil was selling for about $90 a barrel. Now, prices are approaching $130 a barrel., as buyers shun Russian crude. Refiners already feared they would be left with oil they could not resell if sanctions were imposed.
Shell announced Tuesday that it would stop buying Russian oil and natural gas and close its gas stations, jet fuel and other operations in that country, days after Ukraine’s foreign minister criticized the energy giant for continuing to buy Russian oil.
Energy market analysts have warned that prices could rise to $160 or even $200 a barrel if buyers continue to shun Russian crude. That trend could push US gas prices above $5 a gallon, a scenario Biden and other political figures are desperate to avoid.
“A US embargo against Russian oil is very attractive politically right now”thought Morgan Bazilian, director of the Payne Institute at the Colorado School of Mines. Still, the same politicians who now support the ban “will come back to criticize Biden if US gas prices go higher as a result,” he explained.
Are Russian oil imports already declining?
The US oil industry has stated that it shares the goal of reducing dependence on foreign sources of energy and has pledged to work with the Biden administration and Congress. Even without sanctions, some US refiners have suspended their contracts with Russian companies. Imports of crude oil and Russian products have been reduced.
“Our industry has taken important and significant steps to undo relations” with Russia and voluntarily limit Russian importscommented Frank Macchiarolavice president of the American Petroleum Institute, the largest oil and gas industry lobby group.
Preliminary data from the US Department of Energy show that Russian crude imports fell to zero in the last week of February.
Will Europe follow in the footsteps of the United States?
A ban against Russian oil and natural gas would be painful for Europe itself. Russia supplies about 40% of the natural gas Europe uses for home heating, electricity and industrial uses, and about a quarter of the oil Europe needs. European officials are looking for ways to reduce their dependency, but it will take time.
British Business Secretary, Kwasi Kwartengsaid that his country will use the rest of the year to gradually reduce its imports of oil and oil products to “give the market, companies and supply chains more than enough time to substitute Russian imports”, which represent 8% of Great Britain’s demand.
The German Economy Minister, Robert Habeckdefended on Tuesday Europe’s decision to exempt Russia’s energy industry from sanctions so far.
“The sanctions have been deliberately chosen so that they seriously impact the Russian economy and the Putin regime, but they have also been deliberately chosen so that we, as an economy and a nation, can maintain them for a long time.”Habek stressed. “Improper behavior could lead us to the exact opposite.”
“Over the last 20 years, we have come to an ever-increasing dependence on fossil energy imports from Russia”Habeck added. “That’s not a good situation.”
Russian Deputy Prime Minister alexander novakhighlighted this urgency by stating that Moscow would have “every right” to stop natural gas shipments to Europe through the Nord Stream 1 pipeline by retaliating against Germany for suspending the project for the parallel Nord Stream 2 pipeline, which is still is not running. Novak added: “we have not made this decision” and “nobody would benefit from it”. His statement marked a change from Russia’s earlier assurances that it had no intention of cutting off gas supplies to Europe.
Oil is easier to substitute than natural gas. Other countries could increase oil production and ship it to Europe, but a lot of oil would have to be substituted, pushing prices even higher because the crude would have to travel farther.
Replacing the natural gas that Russia supplies to Europe is probably impossible in the short term. Most of the natural gas that Russia supplies to Europe travels through pipelines. To replace it, Europe would have to import mostly liquefied natural gas, known as LNG. The continent does not have enough pipelines to distribute gas from coastal import facilities to the farthest reaches of the continent.
In January, two-thirds of US LNG exports went to Europe, according to S&P Global Platts.
Although US oil and gas producers could drill for more natural gas, their export facilities are already running at full capacity. Expanding those facilities would take years and billions of dollars.