New York City, US – US President Joe Biden on Tuesday announced a ban on Russian oil and gas imports to the United States in retaliation for Russia’s military offensive in Ukraine, injecting more uncertainty into how the conflict and energy crisis will be resolved.
The US’s European partners followed with pressure of their own. The United Kingdom said it would phase out imports of Russian oil and oil products by 2022, while the European Union said it would slash Russian gas imports to Europe by 66 percent by the end of the year.
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Russia plays a pivotal role in the global energy supply and destabilisation could send shock waves through the global economy – one that is already reeling from supply shortages, bottlenecks, and price pressures caused by the coronavirus pandemic.
The US imported an average of 209,000 barrels per day (bpd) of crude oil and 500,000 bdp of other petroleum products from Russia in 2021, according to the American Fuel and Petrochemical Manufacturers.
Only one percent of Russia’s oil exports went to the US market in 2020, according to the US Energy Information Administration. For the US, that volume makes up 8 percent of its total oil consumption. But analysts warn that this could have deeper consequences.
“This is mostly US posturing,” Jim Krane, an energy fellow at Rice University in Houston, Texas, told Al Jazeera. “But it does risk a wider conflict within oil markets and higher oil prices for American consumers.”
On Tuesday following Biden’s remarks, global benchmark Brent crude soared 7.35 percent to $132.27 a barrel while US West Texas Intermediate spiked 7.26 percent to $128.07.
“Russia could retaliate by reducing exports further or cutting exports to US allies,” Krane said.
Russia’s oil and gas industry was omitted in the initial sanctions the West imposed on Moscow, aimed at crippling Russia’s financial and tech sectors and pressuring a shift in the policies of Russian President Vladimir Putin.
Oil giants British Petroleum and Shell had said last week that they were pulling business out of Russia. Shell took it a step further on Tuesday, announcing that it would stop buying Russian oil.
As hostilities in Ukraine continue amidst three rounds of unsuccessful negotiations and Ukrainian President Volodymyr Zelenskyy calls for further action from the West, analysts warn that punishing Russia may have long-term economic blowback on the rest of the world.
‘One of the largest energy supply shocks ever’
Russia has hit back, threatening on Tuesday to retaliate to Western sanctions by halting flows through Nord Stream 1, a pipeline providing Europe with gas.
Russia supplies 40 percent of Europe’s gas. Germany, which has expressed reluctance to ban Russian energy exports, relies on Russia for almost 50 percent of its natural gas.
The 4.3 million bpd of US crude imports to the West from Russia in January 2022 will not be quickly replaced by other sources, Rystad Energy, a Norway-based research firm, said in a note following Biden’s remarks.
“Given Russia’s key role in global energy supply, the global economy could soon be faced with one of the largest energy supply shocks ever,” analysts at Goldman Sachs warned on Tuesday.
Even if countries release their strategic petroleum reserves – crude that can be tapped in times of emergencies – and the Organization of the Petroleum Exporting Countries (OPEC) pumps more oil, prices are likely to stay high.
On Tuesday, Brent hit a high of $133.15 and WTI inched closer to $130 a barrel. It was not long ago that analysts wondered whether oil would top $100 a barrel.
To help stabilize prices, the US does have the capacity to boost its shale oil output, but Reed Blakemore, deputy director at the Atlantic Council Global Energy Center, told Al Jazeera it’s more complicated than just turning on the faucet and letting the shale flow.
“You need the labour, you need fracking sand which is actually incredibly expensive right now. There are logistical and infrastructure components associated with turning on shale production in the US. That will take some time,” he said.
‘Biden has been unsuccessful at encouraging partners in the Gulf’
Saudi Arabia, the United Arab Emirates and Kuwait could potentially ramp up production by 2.1 million barrels per day from current levels within a couple of months, Goldman Sachs estimates.
But other analysts say “Don’t count on it.”
“Biden has been largely unsuccessful at encouraging partners in the Gulf – the Saudis, the UAE, to put more barrels on the market,” Blakemore said.
“It’s going to take a lot more than anybody expects to get Saudi Arabia to put more barrels on the market because it’s going to have to tap into its spare capacity, which Riyadh has treated as a national security priority,” he added.
Also there’s oil-rich Iran and Venezuela, adversaries the US has turned to in recent weeks.
Reaching a nuclear deal with the Iranians could bring extra barrels to market. The US lifting sanctions on oil imports from Venezuela could also help plug the crude hole.
For Russia, China could end up playing a crucial role in absorbing oil the US has barred, analysts told Al Jazeera. “The pipeline infrastructure from Russia to China exists, but whether or not it can handle that much additional supply flow, we just do not know. Physically shipping oil from Russia to China will take some time,” Blakemore said.
Rising costs for consumers
American consumers are already feeling pain at the pump. Petrol prices have surged to a record high since Russia launched its invasion of Ukraine on February 24. US inflation at 7.5 percent – its highest in 40 years – could get worse.
“Oil is a base commodity,” Blakemore told Al Jazeera. “It’s a key piece of global shipping and trade, getting goods from A to B, and manufacturing products we use every day.”
The gauge of global food costs has jumped to a record, according to the United Nations Food and Agriculture Organization.
The surge in food prices is disproportionately affecting poor countries in the Middle East and Asia. The pace of food inflation is also threatening the currency value of emerging economies.