The United States banned Russian oil imports despite that nation warning the world earlier on Tuesday that there may be “catastrophic” increases in oil prices if Western countries ban the imports, as several other nations have proposed to do.
Last week, US senators introduced legislation calling for a complete ban on Russian oil imports to the country; the bill received wide support across the aisle almost instantaneously.
NBC News reports that the move was made as the administration increases the pressure on the Russian economy over the Ukraine invasion.
United States, UK ban Russian oil after Germany nixes Nord Stream 2
President Joe Biden delivered remarks from the White House on Tuesday morning to “announce actions to continue to hold Russia accountable for its unprovoked and unjustified war on Ukraine,” a White House spokesman said.
At the same time as Biden’s speech, British Prime Minister Boris Johnson announced that the UK will end all dependence on Russian oil by the end of 2022.
Russian Deputy Prime Minister Alexander Novak said on state television on Monday that it was “absolutely clear that a rejection of Russian oil would lead to catastrophic consequences for the global market”.
Not only would oil prices more than double, to approximately $300 per barrel, but the moves made by nations to close off Russian oil would also cause the closure of the main gas pipeline from Russia to Germany, he warned.
Biden acknowledged that the ban would likely come with a cost to everyday Americans during his speech announcing the ban on Tuesday.
“I said I would level with the American people from the beginning…and when I first spoke to this, I said defending freedom is going to cost. It’s going to cost us as well, in the United States.”
Russia warned of $300 per barrel oil prices — before White House announcement
“The surge in prices would be unpredictable,” Novak said, adding “It would be $300 per barrel if not more.”
Washington and its European allies have been seriously considering banning all Russian oil imports despite the heavy reliance on them that is the norm for western Europe since the invasion occurred. The UK would not be nearly as heavily impacted by a ban on Russian oil and gas, however, since it imports less than 5% of its gas from that country.
Novak acknowledged the fact that Russian companies were already feeling the pressure of US and European moves to limit their nations’ dependence on Russian energy supplies.,
“We are concerned by the discussion and statements we are seeing regarding a possible embargo on Russian oil and petrochemicals, on phasing them out,” he said.
Despite being the largest producer of oil in the world, the United States still gets 10% of its oil from Russia because of its high rate of consumption.
White House officials said US President Joe Biden discussed the issue during a conference call with the leaders of France, Germany and the United Kingdom on Monday.
Along with most of the nations around the globe, western countries have imposed strict sanctions on Moscow as punishment for its invasion of Ukraine. The US has already imposed sanctions on technology exports to Russian refineries.
The multi-billion euro Nord Stream 2 pipeline that was set to start pumping gas westward from Russia was halted after Germany refused to go forward with its certification after the invasion.
Russia: “We know where we could direct the volumes to”
Germany, like most European countries, is heavily reliant on Russian crude, getting 40% of its oil and 30% of its natural gas from Russia.
However, that may be the extent of that country’s direct sanctions as far as oil is concerned. On Monday, German Chancellor Olaf Scholz cautioned against imposing a ban on Russian oil and gas, acknowledging that Russian energy imports were “essential” to the daily needs of Europeans. As it stands now, Russia supplies almost half, or 40 percent, of all the gas consumed in Europe.
Russia also the top exporter of crude and oil products together, selling approximately seven million barrels per day; this constitutes around seven percent of the total global supply, according to a report from Al Jazeera.
Novak further warned Europeans that if they went ahead with bans on Russian oil and gas, it would be over a year before the continent could replace the volume of oil it that it now buys from Russia; on top of this, consumers would be paying much higher prices for the commodity as well.
“Ultimately, they will be hurt the worst by this outcome,” he said.
“European politicians need to honestly warn their citizens and consumers what to expect,” he declared, adding a caution that hinted at possible Chinese buyers for the oil by saying “If you want to reject energy supplies from Russia, go ahead. We are ready for it. We know where we could redirect the volumes to.”
For now, Novak stated, Russia is fulfilling its obligations but that the country has every right to retaliate against the European Union after the nixing of the Nord Stream 2 deal.
“In connection with … the imposition of a ban on Nord Stream 2, we have every right to take a matching decision and impose an embargo on gas pumping through the Nord Stream 1 gas pipeline,” Novak warned.
“So far we are not taking such a decision,” he said, adding “But European politicians with their statements and accusations against Russia push us towards that.”
The wide-ranging sanctions against Russia have made their mark on stock markets and oil prices around the world, with oil spiking to the highest prices seen since 2008.
Although there has been some moderation over the past day, benchmark US crude rose to $130 a barrel overnight into Monday morning; it later fell to about $119 in afternoon trading yesterday. The international price made it all the way to $139 before decreasing to about $123 a barrel as of Tuesday.
Before the Russian invasion of February 24, the US Energy Department had predicted the price of oil would average approximately $80 a barrel during 2022
Iain Conn, the former boss of Centrica, the owner of British Gas, told the BBC that natural gas was “less freely” traded compared to oil, making it “much more difficult” to replace Russian gas if supplies are affected, because it is delivered by way of fixed pipelines from country to country.
As the world’s second largest gas producer and third largest oil exporter, any import bans would badly damage the Russian economy.
In reality, such sanctions may be difficult to effect, according to Nathan Piper, the head of oil and gas research at Investec, who told the BBC that despite the widespread desire to impose them, “practically, it is challenging” to do so.
Even before the invasion of Ukraine, due to the ramifications of the pandemic and supply issues, the global oil and gas markets were already constrained, “with limited spare capacity to replace any disrupted Russian volumes,” he explained.
“The question is now whether US and European leaders are prepared to endure high oil and gas prices to add energy exports to the sanctions list,” he noted, adding “The threat of this action is almost the worst of both worlds, forcing prices up but doing nothing to limit Russian volumes or the revenues flowing to Moscow.”
Capital Economics analysts forecast that oil prices could even spike to as much as $160 a barrel if the Wes twent ahead with imposed sanctions on Russian exports. Incredibly, however, the disruption to Russian gas would hit countries even harder, according to David Oxley, its senior global economist, who told the BBC it would be a “completely different kettle of fish”.
If a ban came into effect, he says, industries across Europe could be severely affected, with “vast swathes of heavy industry being switched off” because of the added difficulty of having to locate new natural gas supplies.
In addition, he notes, countries such as Germany, which is so heavily reliant on Russian energy, could of course turn back to coal — but that would negate much of the progress that has already been made in eliminating the use of that fossil fuel across the continent.