President Joe Biden delivered a “powerful blow to Putin’s war machine” by announcing a ban on Russian oil, calling it “a step we’re taking to inflict further pain on” Moscow. The embargo on Russia’s energy products means the US would stop accepting about 500,000 barrels per day (bpd) at American seaports, a decision that the president acknowledged would result in higher prices for the American people. This is a significant escalation in the worldwide response to Russia’s invasion of Ukraine, but Biden explained that the United States must “not subsidize Putin’s war” and “remain united” with the international community to keep the pressure on the Kremlin. The announcement comes as Congress has introduced bipartisan legislation that would prohibit imports of Russian energy.
“The goal of US policy is to prevent letting tyrants like Putin use energy as a weapon in the future. Putin seems determined to continue on his murderous path no matter the cost,” President Biden told reporters at a press conference.
He stopped short of encouraging domestic oil and gas production, arguing that his administration approved 9,000 oil leases, something that the industry has contested is not exactly accurate. Instead, President Biden reiterated his government’s support for a transition to clean energy through a series of subsidies and tax credits for businesses and consumers.
Europe Joins America
The European Union is adopting a similar approach. In a Mar. 8 statement, the European Commission presented a new initiative that would slash Russian gas imports by two-thirds before the end of the year. The executive arm of the EU has pledged to stop purchasing fossil fuels from Russia prior to 2030 and invest in more suppliers, renewable hydrogen output, and energy-efficient household products.
The plan will also require eurozone states to fill their oil and gas storage levels by at least 90% by Oct. 1 each year. As part of the updated campaign, the EU might relax state aid rules for businesses facing higher energy prices, signaling that it could reduce its previously ambitious transition to renewables.
“We could gradually remove at least 155 billion cubic meters of fossil gas use, which is equivalent to the volume imported from Russia in 2021. Nearly two-thirds of that reduction can be achieved within a year, ending the EU’s overdependence on a single supplier,” the commission said.
The 27-member bloc acquires approximately 45% of its gas from Moscow, importing approximately 2.5 million bpd. German Chancellor Olaf Scholz recently confirmed that energy supply in the region “cannot be secured in any other way,” forcing the government to revive coal, nuclear, and liquefied natural gas (LNG) production. Hungary, meanwhile, noted that it would not endorse any measure that would threaten its energy security.
“Europe is learning the lesson that America did in the 1970s that you cannot take energy security for granted or a price will be paid. Sometimes that price is in money and other times in blood,” averred Phil Flynn, an energy analyst in a recent market commentary. “Europe is pledging to get off Russian energy dependence, but it might be too late.”
Russia: ‘We’re Ready for It’
Russian Deputy Prime Minister Alexander Novak warned in an address on state television that if the West bans the country’s energy exports, a barrel of oil could top $300 “if not more.” He added that the Kremlin could adopt similar measures as the U.S. and Europe, such as installing “an embargo on gas pumping through the Nord Stream 1 gas pipeline.”
“So far, we are not taking such a decision. But European politicians with their statements and accusations against Russia push us towards that,” Novak said, adding that “we’re ready for it.”
The consensus among market analysts is that Russia and the rest of the world would be impacted since it would result in soaring prices. However, as long as China continues to purchase vast sums of oil from Moscow, the Eastern European energy powerhouse could endure the bombardment of sanctions, restrictions, and embargoes, strategists prognosticate.
In addition to Beijing reaffirming its “rock solid” strategic trade partnership with Russia, it is being reported that China is in talks with state-owned firms, including China Petrochemical Corp. and Aluminum Corp. of China, to bolster energy and other commodity imports by acquiring stakes in Russian firms. This comes as American and European oil and gas firms, such as Exxon Mobil Corp. and BP, have abandoned Russia.
But industry observers warn that when you are the world’s largest exporter of crude to global markets, suddenly relying on only a handful of countries might not be a sound strategy to generate funding for a war economy that is shut off from international commerce.
$200 Oil is Coming?
April West Texas Intermediate (WTI) crude oil futures soared on the news, rallying more than 8% to nearly $130 a barrel on the New York Mercantile Exchange. Brent, the international benchmark for oil prices, also surged around 7.5% to above $132 on London’s ICE Futures exchange. How much higher can it go? Some options traders are speculating $200 by the end of the month.
“There is obviously plenty of uncertainty in the oil market at the moment, and the only certainty is that forecasts will change as the Russia-Ukraine situation evolves,” noted Warren Patterson, the Head of Commodities Strategy at ING. In a volatile market where the bears have invaded, the only certainty might be to pour into agricultural, energy, and metal commodities.
~ Read more from Andrew Moran.