With the attack on Ukraine causing the gravest humanitarian crisis on European soil since World War II, the U.S. is taking aim at the heart of the Russian economy: its energy sector. President Biden on Tuesday announced a U.S. ban on Russian oil and gas imports over the country’s invasion of Ukraine, a direct hit on Russian President Vladimir Putin’s main revenue source as Russian forces continue their battering of Ukrainian cities.
The announcement comes as the worst refugee crisis Europe has ever seen deepens, with more than 2 million people fleeing Ukraine in recent days into neighboring countries, according to the United Nations.
“Today, I am announcing the United States is targeting the main artery of Russia’s economy,” the president said. “We’re banning all imports of Russian oil and gas energy. That means Russian oil will no longer be accepted in U.S. ports, and the American people will deal another powerful blow to Putin’s war machine.”
Oleg Ustenko, an economic adviser to Ukraine’s president, this past weekend penned an op-ed pleading with the world to cut off what he denounced as Russia’s “blood oil,” which supplies nearly $1 billion a day to Moscow and which he said is financing the war in Ukraine. “Buy nothing from Russia,” he wrote.
With U.S. gas prices surging to all-time highs as oil prices soar, here’s what the ban on Russian oil imports means for Americans at the pump and elsewhere.
What the U.S. ban looks like
The U.S. is far less dependent on Russian oil than Europe. Last year, about 8% of U.S. oil imports came from Russia, while as of January almost no Russian oil came into the U.S, said Troy Vincent, senior market analyst at DTN, a commodities research firm.
Vincent and other analysts said before the President’s announcement Tuesday that the relatively small scale of Russian oil in America made it more likely for the U.S. to move on its own to penalize Russian energy, imposing oil-related sanctions that the European Union, which is much more dependent on Russian oil and gas, could join later.
U.S. sanctions could’ve taken two forms, Vincent said before the ban was revealed by the White House. The more severe option would be for the U.S. to sanction Russian oil exports — not buying any Russian oil and refusing to engage with any nation that did, much as the U.S. approached sanctions on Iran in recent years.
The softer and more likely option was to impose a U.S. embargo on Russian energy. “We’ll say, ‘Nobody in the U.S. will touch Russian oil, but leave it to the EU to decide their own fate,'” Vincent said.
Mr. Biden said Tuesday the decision to ban Russian oil and gas, which also applies to Russian coal, was made in close consultation with allies and partners in Europe, but acknowledged that some allies “may not be in a position to join us.”
Less oil, pricier gasoline
In the short-term, eliminating Russian oil will drive sky-high gas prices in America even higher, experts predicted.
“We think that a complete ban on Russian energy imports would cause the prices of Brent crude oil and European natural gas to surge to $160 [per barrel],” economists at Capital Economics said in a research report.
That level would obliterate the all-time record of $147 a barrel, reached in the summer of 2008, and drive average gas prices in the U.S. above $5 a gallon, according to energy analysts and economists.
A Quinnipiac poll released Monday found an overwhelming majority of Americans in favor of banning Russian oil, even if it means higher gas prices. However, that attitude could change once motorists find themselves actually paying far more at the pump while inflation eats into other parts of their household budgets.
“We’re negative toward Russia until you start to really explain what the costs are to the U.S., and then people start to get a little bit softer,” said Clayton Allen, managing director for the United States at the Eurasia Group, a political risk research firm.
“If Biden wants to impose really strict measures, it might be better to do that sooner while public sentiment is on his side,” Allen said.
Gas prices, already a political albatross for President Biden, are clearly weighing on the diplomatic decision, and White House officials have underlined their reluctance to take any steps that would drive gas prices even higher.
With sanctions, “U.S. energy prices will have to increase — that may be a short-term increase, but it’s something they are obviously concerned about,” Allen said. “They haven’t spent as much time as I’d have expected trying to domesticate the idea that U.S. consumers may have to bear some of the costs of isolating and punishing Russia.”
Wild cards: Iran and Venezuela
To limit the impact of higher prices, the U.S. and international partners are releasing oil from reserves. Historically, each time the nation’s Strategic Petroleum Reserve (SRP) is opened, gas prices ease for two to three weeks, Allen said.
“If you’re concerned about gas being $5, an SRP release won’t pull gas back to $3.50, but it will prevent the oil market from seizing up like it did in the 1970s,” Allen said.
The Biden administration is also negotiating Iran’s reentry into a nuclear control agreement, which would bring Iranian oil back on the world market. Currently, Iran can produce about one-fifth of the oil that would be leave the market in the case of Russia’s exit, said DTN’s Vincent.
The U.S. is also looking to ease relations with Venezuela, which has been barred from selling oil to the U.S. since the Trump administration.
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