Following the invasion of Ukraine by Russia, US and its allies have sanctioned the Russian central bank and some of its other banks. However, so far the markets are not showing signs of strain. But it is oil that strategists are watching since it could drive inflation and affect the economy. “Whatever happens with oil will reverberate across all the other markets (CNBC).” Stopping oil imports from Russia seems to be impractical or at least too difficult. Before the sanctions, Russia exported about 5 million barrels of oil per day. No other nations seem to be able to offset Russian oil production. In addition, oil demand has risen, and this could push oil prices above $150 a barrel.
Import of Russian Oil and Gas
One of the sanctions imposed on Russia by the US and Europe is the import of oil import. According to the BBC, the US is banning all Russian oil and gas imports. However, the UK will phase out Russian oil imports by the end of 2022. The EU gets a quarter of its oil and 40% of its gas from Russia. The EU says it will switch to alternative supplies and make Europe independent of Russian energy “well before 2030”. Germany has put on hold the permission for the Nord Stream 2 gas pipeline from Russia to open.
According to Aljazeera, Germany has unveiled plans to halve its imports of Russian oil by the summer (beginning in June). Before the war, a third of Germany’s oil imports came from Russia. Moreover, 45% of its coal purchases and 55% of gas imports also came from Russia. Germany hopes to wean itself off Russian coal completely by the summer or autumn of this year. On gas imports, however, Economy Minister Robert Habeck said that it was more complicated. Germany is expected to be able to largely wean itself off Russian deliveries only in mid-2024.
World’s Largest Oil Producers
As it says in Forbes, Russia is one of the world’s largest oil producers. In 2020, Russia produced 10.1 million barrels per day (BPD) of crude oil and natural gas condensate. That was good for second place behind the US at 11.3 million BPD. Saudi Arabia was third at 9.3 million BPD. However, the US consumes more oil (17.2 million BPD) than Russia (3.2 million BPD) or Saudi Arabia (3.5 million BPD). The result is that the US is a net importer of crude oil, while Russia and Saudi Arabia are major crude oil exporters. This also means that the US economy is more vulnerable to oil price shocks. Higher oil prices are a net benefit to Russia and Saudi Arabia.
Russian Oil Exports Before Embargo
As it says in , Moscow is one of the world’s largest energy producers. It exports about 5 million barrels of oil per day. It is also a major exporter of natural gas, accounting for more than a third of Europe’s supply. Similarly, it says in the that Russia is the third biggest producer of oil in the world. The US and Saudi Arabia are the first and second producers respectively. Russia exports about five million barrels of crude oil each day. More than half of that goes to Europe. Therefore, stopping oil imports from Russia may seriously damage the economy of European countries.
No Oil Producer Appears to be Able to Offset Russian Oil Production
Stopping oil imports from Russia can land Europe in trouble. According to The Conversation, about half of Russia’s exported oil – roughly 2.5 million barrels per day – goes to European countries. These include Germany, Italy, the Netherlands, Poland, Finland, Lithuania, Greece, Romania and Bulgaria. The US and Europe have cut back purchases of Russian oil and energy traders avoid it for fear of sanctions. Thus the search is on for other sources.
As it says in the US, Canada and the UK have announced embargoes or phase-out measures for Russian energy. The European Union has held back, instead launching a new energy strategy, REPowerEU. This aims to reduce the EU’s gas imports from Russia by nearly two thirds by the end of 2022. It also aims to make Europe independent from all Russian fossil fuels well before 2030. REPowerEU shows that European countries have understood one point: that OPEC and producers in Africa and South America cannot offset Russian oil production.
Demand for Oil and Rise in Prices
Forbes writes that a controversial issue is what a Russia-Ukraine conflict may do to oil prices. According to Oil Price.com, analysts warn of $150 oil if the West bans Russian crude. The United States and the European Union have been reluctant to slap sanctions on Russia’s oil and gas exports. Western allies are worried about the effects on Europe’s energy supply and skyrocketing oil and petrol prices. If the West bans Russian oil, international crude prices could climb sharply to $150 per barrel, analysts say.
Stopping oil imports from Russia may impose serious economic pressures on Europe. It may result in higher energy bills and higher inflation. Oil Price.com writes that, even in the event of no sanctions on Russian oil, oil prices will remain very high and jump higher still. This is because buyers and refiners are in a “self-sanctioning” mode. They do not dare to touch Russian crude and are looking for alternative supplies. We should note that oil barrels from other counties cannot replace the loss of Russian oil. Thus the energy crisis in Europe seems to continue as sanctions against Russian oil loom.