"Putting an embargo on Russian oil will be a nightmare for US consumers as it will send the oil price skyrocketing," says Nafis Alam, professor of finance and head of the School of Business at Monash University Malaysia. "Russia is the world's top exporter of crude and oil products combined, with exports of around 7 million barrels per day (bpd), or 7-7.5% of global supply. Additionally, any embargo will be counterproductive for Russia, as higher oil and gas prices will lead to more profitability for Russian oil firms means more funding to continue the war."
CNN on 4 March projected that Washington's embargo on Russian crude "would most likely not have a dramatic impact on prices at US gas pumps," since "unlike Europe and Asia, the United States doesn't really use much Russian oil." According to the EIA, the US imported 90,000 bpd of oil from Russia in December 2021. For comparison's sake, the US received 223,000 bpd from Iraq, 472,000 bpd from Saudi Arabia and 492,000 bpd from Mexico, in the same period of time, "let alone the 4.1 million imported from Canada each day," CNN noted.
Nevertheless, prior to the move gas prices surged to $4.104 a gallon on 7 March, surpassing the previous all-time high of $4.103 recorded in 2008, according to the Hill. The same day, Brent and West Texas Intermediate (WTI) jumped to their highest levels since 2008, in anticipation of the US embargo and a similar move by the UK, according to Reuters. Brent rose $5.1 (4.3%) and settled at $123.21 per barrel, while US WTI rose $3.72 (3.2%) and settled at $119.4 per barrel.
On 8 March, oil prices continued to rally, with global benchmark Brent crude rising about 4%, to about $129 a barrel and WTI futures climbing to about $123.50 a barrel, according to the New York Times.
"Any disruption in oil supply due to the embargo on Russian oil and gas will push the prices, which will be painful for the US consumers," says Alam. "Not only a higher fuel price, but it can also push inflation in the US market. As the global economy is still reeling from the Covid pandemic, any increase in oil prices will damage the US and global economies.
The academic does not rule out that rising oil prices due to the US embargo on Russian crude could pose a significant risk for Biden and the Democrats at the upcoming midterm elections. Gasoline prices have always played a significant role in US politics, and no sitting president will chance making their voters unhappy, according to Alam.
"Higher fuel prices will also increase inflation, further dent the economic recovery and make Democrats unpopular," he stresses.
U.S. President Joe Biden delivers the State of the Union address at the U.S. Capitol in Washington, DC, U.S, March 1, 2022
© REUTERS / Saul Loeb
Why the EU Is Unlikely to Join Washington's Russia Oil Sanctions
However, according to global analysts, the prices are likely to surge even further. Thus, Goldman Sachs raised its Brent forecast for 2022 to $135 from $98 and its 2023 outlook to $115 a barrel from $105, expecting the "largest energy supply shocks ever" because of Russia's key role. For its part, Oslo-based consultancy Rystad Energy said that if the EU follows the US’ lead and bans Russian oil, crude prices may easily jump to $200 a barrel.
Is it impossible to maintain the same oil supply levels globally without Russia, according to Thierry Bros, professor at the Paris Institute of Political Studies and a contributor to Natural Gas World.
"I mean, there will be a little bit of rerouting, but it's not enough," Bros says.
While the EU has not yet jumped on the Russian oil embargo bandwagon, the UK is due to phase out Russian crude imports and oil products by the end of 2022, as Prime Minister Boris Johnson said on Tuesday.
For his part, German Chancellor Olaf Scholz on 7 March pushed back against calls from Washington and Kiev for a ban on imports of Russian gas and oil within the framework of broader sanctions on Moscow.
"Europe has deliberately exempted energy supplies from Russia from sanctions," Scholz said in a statement, as quoted by Politico. "At the moment, Europe's supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens."
U.S. President Joe Biden holds a joint news conference with German Chancellor Olaf Scholz at the White House in Washington, U.S. February 7, 2022.
© REUTERS / LEAH MILLIS
Germany is against the gas and oil embargo, since it has no alternative to Russian energy supplies, explains Dr. Pierre-Emmanuel Thomann, a geopolitical expert. Earlier, Berlin announced the freezing of the certification of Russia's Nord Stream 2 project which, coupled with sweeping anti-Russia restrictions, has resulted in an unprecedented spike in gas prices. The price of gas on the stock exchange in Europe surpassed $3,600 per 1,000 cubic metres on Monday.
"Germany in particular is opposed to any embargo on Russian gas, on which it is highly dependent, while the United States imports little Russian crude," says Thomann. "Such a ban on gas and oil imports from Russia 'would threaten social peace' in Germany, said Friday Green Minister of Economy Robert Habeck. Germany imports 55% of its gas, 42% of its oil and coal from Russia. The EU depends on Russia for 40% of its natural gas and a quarter of its oil imports."
Everyone is going to lose from the Russian oil ban, but Europe is due to suffer the most, the geopolitical expert warns.
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