What does a US ban on Russian oil accomplish?

NEW YORK (AP):

With Russia intensifying its war on Ukraine, killing civilians and triggering a mass refugee crisis, President Joe Biden on Tuesday announced a US ban on imported Russian oil. Critics of Russia have said that sanctioning its energy exports would be the best – perhaps only – way to force Moscow to pull back.

A full embargo would be most effective if it included European allies, which are also desperate to stop the violence in Ukraine and the danger Moscow poses to the continent. Yet it’s far from clear that all of Europe would take part in an embargo, though Britain announced Tuesday that it would phase out Russian oil imports by year’s end.

Unlike the United States, Europe is deeply reliant on energy it imports from Russia, the world’s second-largest crude oil exporter behind Saudi Arabia. While the US could replace the relatively small amount of fuel it receives from Moscow, Europe could not, at least not anytime soon.

What’s more, any curbs on Russian oil exports could send already skyrocketing oil and gasoline prices ever higher on both continents and further squeeze consumers, businesses, financial markets and the global economy.

WHAT WILL HAPPEN WITH the BAN ON RUSSIAN OIL?

With gasoline prices in the US surging ever higher, the Biden administration has faced growing pressure to impose further sanctions on Russia, including a ban on oil imports.

For now, a broad US-European ban appears elusive. On Monday, German Chancellor Olaf Scholz made clear that his country, Europe’s largest consumer of Russian energy, has no plans to join in any ban. In response, US Deputy Secretary of State Wendy Sherman hinted that the US could act alone or with a smaller group of allies.

“Not every country has done exactly the same thing,” Sherman said, “but we have all reached a threshold that is necessary to impose the severe costs that we have all agreed to.”

DOES THE US BAN ON RUSSIAN OIL HURT MOSCOW?

The impact on Russia would likely be minimal. The United States imports a small share of Russia’s oil exports and doesn’t buy any of its natural gas.

Last year, roughly eight per cent of US imports of oil and petroleum products came from Russia. Together, the imports totaled the equivalent of 245 million barrels in 2021, which was roughly 672,000 barrels of oil and petroleum products a day. But imports of Russian oil have been declining rapidly as buyers shunned the fuel.

Because the amount of oil the US imports from Russia is modest, Russia could potentially sell that oil elsewhere, perhaps in China or India. Still, it would probably have to sell it at a steep discount, because fewer and fewer buyers are accepting Russian oil.

If Russia were eventually shut off from the global market, rogue countries such as Iran and Venezuela might be “welcomed back” as sources of oil, said Claudio Galimberti, an analyst at Rystad Energy. Such additional sources could, in turn, potentially stabilise prices.

“By eliminating some of the demand, we’re forcing the price of Russian oil down, and that does reduce revenue to Russia,” said Kevin Book, managing director at Clearview Energy Partners. “In theory, it is a way of reducing how much Russia earns on every barrel it sells, maybe not by a lot, but by some. The most important question is whether there’s going to be more pressure on the other side of the Atlantic.”

HOW COULD A RUSSIAN OIL BAN AFFECT PRICES?

News of the US oil ban sent gasoline prices surging, with a gallon of regular selling for an average of US$4.17 Tuesday.

A month ago, oil was selling for about US$90 a barrel. Now, prices are surging close to US$130 a barrel as buyers shun Russian crude. Refiners had already feared being left with oil they couldn’t resell if sanctions were imposed.

Shell said Tuesday that it would stop buying Russian oil and natural gas and shut down its service stations, aviation fuels and other operations there, days after Ukraine’s foreign minister criticised the energy giant for continuing to buy Russian oil.

ARE RUSSIAN IMPORTS ALREADY FALLING?

The US oil industry has said it shares the goal of reducing reliance on foreign energy sources and is committed to working with the Biden administration and Congress. Even without sanctions, some US refiners have severed contracts with Russian companies. Imports of Russian crude oil and products have tumbled.

“Our industry has taken significant and meaningful steps to unwind relationships” with Russia and voluntarily limit Russian imports, said Frank Macchiarola, senior vice president of the American Petroleum Institute, the oil and gas industry’s largest lobbying group.

Preliminary data from the US Energy Department shows that imports of Russian crude dropped to zero in the last week in February.