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President Joe Biden’s administration initially resisted a US oil ban amid worsening inflation and higher prices at the pump. But as public outrage at Moscow has risen, the White House now says it is in discussions with allies on such a ban while working to ensure adequate oil supplies, although no decision has been made. — Reuters pic
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NEW YORK, March 8 — The movement to bar imports of Russians oil exports has gained momentum in recent days in Washington following Moscow’s brutal invasion of Ukraine.
A bipartisan group of lawmakers last week introduced the Ban Russian Energy Imports Act, which would declare a national emergency as a result of Russian aggression and prohibit all US imports of Russian energy.
President Joe Biden’s administration initially resisted a US oil ban amid worsening inflation and higher prices at the pump. But as public outrage at Moscow has risen, the White House now says it is in discussions with allies on such a ban while working to ensure adequate oil supplies, although no decision has been made.
Below are some of the key questions involved.
How would a ban affect the US oil market?
Russia accounts for less than 10 per cent of US imports of oil and petroleum products, which includes mazut, a low-quality fuel that can be refined into higher quality products.
The relatively small share of the US energy picture means “it’s easier for the US than for anybody else” to ban those imports, said Antoine Halff, a research scholar at Columbia University’s Centre of Global Energy Policy.
“I wouldn’t minimize what it takes to replace Russian oil, but it’s achievable,” he said.
What would be the impact on oil prices?
Even without a ban, oil prices have risen about 30 per cent in response to the Russian invasion.
US gasoline prices averaged US$4.07 (RM19.66) a gallon yesterday, an increase of US$0.62 from a month earlier and 47 per cent higher than the year-ago level, according to the American Automobile Association.
Washington and Brussels imposed stiff financial sanctions on Moscow, aimed at cutting the country off from the global economy and shutting down its supply of funds, but the penalties specifically exempt transactions involving energy.
Even so, experts say some of the price increase is due to buyers who “self sanction,” avoiding purchases of Russian oil.
Houston oil consultant Andrew Lipow believes the market has priced in about three million barrels a day of disrupted output, due to actions such as tanker owners declining to load Russian oil or traders pulling back because of lack of bank financing amid Western sanctions.
“No one wants to purchase a cargo of crude oil and then have it seized because it ran afoul of sanctions,” said Lipow who pointed to nervousness over buying crude “tainted” by a connection to a sanctioned entity.
Will Europe join a ban?
A US embargo would have more bite if it were joined by the European Union. In general, Europe’s economy is much more reliant than on Russian energy, especially natural gas, which accounts for about 40 per cent of supply.
US Secretary of State Anthony Blinken said Sunday that “active discussions” were underway with European nations about banning Russian oil imports, but leading European officials threw cold water on the idea yesterday, noting that was no way to abruptly do without.
“Europe has deliberately exempted energy supplies from Russia from sanctions,” German Chancellor Olaf Scholz said in a statement, adding that key supplies for heat generation, mobility and industrial production “cannot be secured in any other way at the moment.”
How would the United States make up for lost Russian oil?
There already have been signs of how the West’s retreat from Moscow is remaking the geopolitical landscape. The Ukraine crisis has raised the stakes of ongoing talks on a new Iran nuclear deal that could potentially remove US sanctions on Iran’s petroleum sector.
In another apparent shift, senior US officials reportedly travelled to Venezuela over the weekend to meet with the government of Nicolas Maduro. The South American country was once a top source of US oil imports, but Washington halted imports in 2019 following sanctions on the country.
Of the two countries, Iran is well positioned to quickly raise output, while there are more questions about Venezuela given the state of its infrastructure, Columbia University’s Halff said.
Russia is a big enough oil producer that not all of the lost barrels can be replaced, but “you could offset some of it.”
Will US petroleum producers make up the difference?
Large domestic companies such as ExxonMobil and Chevron have been cautious about ramping up investment in response to higher oil prices, in part due to Wall Street’s skepticism towards aggressive drilling plans. The firms have shifted some of their extra cash from higher profits on dividends and share buybacks.
Oil prices remaining above US$100 a barrel likely would incentivize some more activity, but producers also are watching the global picture to see how the situation evolves.
“The biggest risk here, of course, is if you go ahead and you start drilling, and then the United States makes a deal with Iran, and also this Iranian oil hits the market,” said Stephen Schork an oil analyst who writes a newsletter on energy markets.
How will the Russia crisis affect US climate policy?
The cornerstone of Biden’s climate agenda, the Build Back Better Act, was already struggling on Capitol Hill, even before the invasion of Ukraine seized national attention.
Biden’s critics in the Republican party have said the crisis highlights the need to reconsider White House policies such as the canceling of the Keystone pipeline and the removal of drilling acreage in Alaska and other environmentally sensitive habitats.
But environmentalists say the lesson of the crisis isn’t the need for more domestic oil production, but more investments in electric vehicles and renewable energy.
“Today, Russia provides 10 per cent of the world’s oil,” said Mark Brownstein, senior vice president at the Environmental Defence Fund. “You want to make that oil worthless? Show Putin you don’t need it. That’s what accelerating the transition to a clean energy future will do.” — AFP