Oil drums
Credit: TN


US President Joe Biden has called for a boycott of Russia's oil and gas saying that these measures are aimed at targeting a major artery in the Russian economy, but what will be the consequences for the rest of the world? US President Joe Biden has banned Russian oil and gas. The United Kingdom has announced that it will phase out Russian oil imports by the end of this year. Prior to the announcement, Russia had warned of dire consequences for the global economy.

There is a major escalation in the US economic sanctions against Russia for its attack on Ukraine. US President Joe Biden has gone after President Vladimir Putin's most lucrative industry. The US is banning all imports of Russian oil and gas and energy, which means that Russian oil will no longer be acceptable at US ports and the American people will deal another blow to Putin's war machine. The decision by President Biden to ban Russian energy imports to the United States came after pressure from the US Congress and the approval of Ukrainian President Vladimir Zelensky. Biden acknowledged that the latest sanctions could lead to a rise in US gas prices. Consumers are already paying an average of more than $4 per gallon, up from more than $2.77 just a year ago. Since then, the price of gas at the pump in the United States has risen by 75 cents, and these sanctions are bound to increase it further. The White House is urging to release some of the US strategic oil reserves in order to control prices and offset supply shortages. Politically, President Biden called on his vice president, Kamala Harris, to visit Poland and Romania to bolster support for Ukraine, and reassure frightened allies that Russia could turn its aggression on them.

Russia's role in the energy industry:

Russia is a commodity powerhouse. It produces more than 10% of the world's oil and natural gas, and Europe depends on it for one third of its gas. Sanctioning this sector will further increase energy prices affecting the already fragile global economy as Russia is a major global supplier. It could also mean that Russia would not lose much of its profits. The United States and its allies have agreed to release 60 million barrels of oil reserves to cover any shortfall. As the world consumes 100 million barrels a day, analysts say that no oil-producing country can replace Russia's oil exports to Europe.

Europe’s dependence on Russia:

It is only a matter of geography and proximity. The continent is connected to Russia by a pipeline system. They have the main export pipelines from Russia to Europe, which reaches many countries, and Europe has a lot of maritime exports that go to Europe as well. If you look at crude oil, in particular, about 60% of Russia's exports go to Europe, about 35% to Asia, mainly to China and the rest of the world. So in terms of whether Europe can diversify and find an alternative to Russia, the answer is no and no immediate term is possible. The European Commission has developed an emergency plan to reduce its dependence on Russia for natural gas supplies by next winter by enhancing gas storage, searching for an alternative such as the US LNG, and managing other sources of supply. But it's really hard. It is important that Europe has a sense of urgency and is moving fast, but this is not something that can be changed within a year. (Cahill B.)

Iran and Venezuela: Will they fill the gap? 

They can't close the gap because if you take Russia out, which exports eight million barrels a day, which is eight times the global daily consumption, they can't produce that. Further, the OPEC countries and their 10 allies, led by Russia, really can't pump it so fast. Now let us look at Venezuela. Of course, the US could go and talk to Venezuela and the Venezuelan people would actually agree to talk to the US because though when Venezuela was under US sanctions, the Russians have been its only friend, now they are clearly worried if the money dries up in Russia what will happen to them? Thus, they need these direct payments. The national oil company is underinvested heavily and it is no more. It used to be one of the shining lights in the oil industry. Now it's near the bottom as a player. Similarly, if a nuclear deal is reached, Iran could bring 1.2 million barrels per day. It will take more time, and remember that the JCPOA has been negotiated through the five permanent members of the UN Security Council and Germany. And Russia is a member of p5.

The role of OPEC:

What is happening there is that Riyadh and Abu Dhabi are not in the mood to do anything for Washington. They are making political demands. They are trying to take advantage of this. If we look at last week, OPEC Plus had a meeting immediately after the war started and that meeting lasted for 13 minutes. They basically decided to continue the deal, which is to add 400,000 barrels per day to the market and continue what they have been doing since last April. There were many reasons for this. We still have a lot of questions about the capacity to absorb the severity of this supply shock from Russia. There is so much fear and panic in the oil market right now that some of the OPEC Plus states are worried that if they increase production further for a month or two, it won't really make much difference, but Political pressure is going to increase on OPEC Plus. This is a serious supply issue and the role of OPEC states is to regulate market fluctuations and prevent fluctuations. It seems that there is no one in the market at the moment and that Saudi Arabia, UAE, and others are ignoring the demands of big consumers not only from the USA but also from countries like China and India. So many things are possible in the coming days. (Cahill B.)

Impact on Moscow:

This is not a problem for Russia. If the United States and Britain or, for example, the European Union will stop buying Russian oil, it is not such a big part of the Russian economy and the latter has already reached an agreement with China. That is to provide more oil to Beijing in the future. This year they have a new part of the contract. This is even more troubling for the United States and the United Kingdom. The United States was the first to retaliate against Russia by imposing sanctions on Iran and Venezuela. We now see that technical opportunities in Venezuela have been broken by US sanctions and that they can no longer supply oil to the United States. This is more dangerous for Europe or the European economy than for Russia. It is good for the development of Russia's domestic economy. So, at the moment there is no serious problem for Russia itself because of the oil sanctions. (Savin L.)

Read more: Sino-Russian relations and Ukraine

Can Europe switch to alternatives?

There are two things you need to decide. You need to divide between oil and gas. If you have oil, it will always find a market. The Chinese and the Indians just waited until the discount was low enough and they bought it. Gas is more difficult because it requires infrastructure. This is not a light switch. The United States will bring about 12 million tons of new LNG to the market in about five years. But Europe needs to warm homes before the five years. They need infrastructure and need regasification terminals. They do not have enough of them and thus, this is not a light switch.

Most EU countries cannot find alternatives to Russian gas and oil because half of the EU countries depend on Russian supplies. It's not just North Stream One, its Elsa Oil production, and its some logistics depend on Russia. It will be a series of reactions and will have a profound effect on the European economy itself. So, in a few years, they will try to find an alternative, but at the same time, Russia will find an alternative to a new market in the Asian parts of the world. For example, China, India and Pakistan, and more countries that are energy hunters. (Meyer C.)

Obviously, we will see some demand collapse, but our economies are still running on oil, gas, and coal. If the Germans say turn off the gas, they will need some coal, some base loaders to keep the lights on. So it is highly costly and the cost is beyond these countries. The German Minister of Economy and Deputy Chancellor says that if we immediately shut down Russian gas, he fears for harmony in the country. What's more, if we look at hyperinflation, which is not good for the world economy, we must not forget about food, because Ukraine and Russia account for about 30% of the world's food supply. Ukraine is part of the World Food Program, which fuels food supplies. So developing countries Sudan, Somalia will really feel pain because they will not get grain. And even if they did, they would not be able to escape the effect. In addition, fertilizer is a direct input to gas fertilizer. Let's take Germany as an example. Two of the three largest fertilizer suppliers are Russian. (Meyer C.)

Global implications:

The economic risks are huge if you impose complete sanctions on Russian energy exports, which is a recipe for recession. It is not possible for the oil market to make up for such losses. That is why we have not yet seen direct sanctions. Even with sanctions only on the Russian central bank, Russian financial institutions, and other Russian institutions, we have already seen a huge loss in supply. No one knows how much offline it is now, but it is a good bet that about 2.53 million barrels per day of raw materials are already offline today, even without direct sanctions. If you rent it up to 8 million barrels a day, the market has no way of dealing with this scale of loss. Hence, prices will go up. It will be a severe economic meltdown and the market will panic. This is a recipe for disaster.

Russia is ready for trade and the future with the United States, with the European Union. Mr. Putin has repeatedly said that we are ready for cooperation and Russia came to impose retaliatory sanctions and cut off gas supplies on the United States and the European Union. if there will be any serious effects on the Russian economy in the future is a matter of time, but now in about a few months Energy sector does not threaten the Russian economy.

Read more: Diplomacy and Ukraine


What Europe will do? 

The market has basically broken down in the last six months and we have seen a sharp rise in gas and electricity prices in Europe. It is really difficult to counter the dependence on Russia, but there are some European policies that have exacerbated this situation. One thing that the International Energy Agency and the Europeans have noticed is that they need to work hard from now until next winter to build up as much gas as possible to fill all these gaps, and so on. It is very expensive for them to do so. Gas supply is very low, meaning that LNG producers around the world are in full swing, and not every European country has an LNG import terminal. Those who have regasification terminals are not connected to all these markets. So, they all have to try to fill as much gas as possible. They are still going to rely on gas from Russia, but they will do everything possible to connect with each other to increase gas storage. They really need to look at gas policies. (Cahill B.)

Russian possible response:

Russia is preparing various sanctions. Prime Minister, Mikhail Mishustin has already said that we have taken into account the dangers of various sanctions imposed by the West. Therefore, further sanctions would be more dangerous for the European Union and the United States, as Russia would impose more necessary sanctions. We should talk not only about the oil and gas sector but also about food fertilizers. There are also various sanctions that Russia has imposed on European assets, capitals, etc., within Russia. So, of course, this is a war that works in other ways. (Savin L.)



Ben Cahill, a Senior Fellow Energy Security and Climate Change Program at the Center for Strategic and International Studies

Cornelia Meyer, an Economist, and Ceo Meyer Resources

Leonid Savin, Chief Editor Geopolitics.ru



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