Christmas is over, but President Joe Biden has been delivering belated parting gifts to his successor. After employing various measures to reduce oil prices, the current administration admits defeat and throws the kitchen sink at Russia. With the war in Ukraine hitting its third year, the White House may believe it is helping President-elect Donald Trump by going scorched earth on Moscow, but it could be having the opposite effect.
Biden, Sanctions, and Oil Prices
When the war in Eastern Europe began, Biden and Treasury Secretary Janet Yellen tiptoed their way around applying repercussions. The objective was to punish Russia without dramatically raising oil prices in global energy markets and effectively increasing US households' utility bills. An example of this happened in late 2022 and early 2023.
The US Treasury announced that it would impose a price cap on Russian crude exports to facilitate the flow of its discounted oil into the world economy. The mechanism was crafted "to help protect consumers and businesses from global supply disruptions" and ensure low- and medium-income countries would not suffer rocketing energy and food prices.
Biden and his team have ostensibly given up on this pursuit.
Last week, the president approved the "most significant sanctions yet on Russia’s energy sector" by slashing the country's revenues that continue to fund the war in Kyiv. Additionally, the latest sanctions package applies to tankers carrying Russian crude and removes a provision exempting the intermediation of energy payments from sanctions on Russian banks.
"There is not a step in the production and distribution chain that's untouched and that gives us greater confidence that evasion is going to be even more costly for Russia," an official told reporters in a Jan. 10 call.
Since then, oil prices have responded by rising. West Texas Intermediate (WTI), a US benchmark for crude, has surged 10% this month, reaching $78 per barrel on the New York Mercantile Exchange. Brent Crude, a benchmark for international oil prices, has climbed 8% and topped $80 a barrel on London's ICE Futures exchange.
Market Talk
Proponents assert that these sanctions were necessary to deter Russia. However, if they were critical to stopping the Kremlin, why were they not implemented earlier? Oh, right! There was an election.
Energy experts agree that these sanctions have disrupted supplies and added uncertainty in global energy markets. The debate is whether these efforts will lead to permanent or temporary changes in market fundamentals. ING strategists aver that these sanctions could substantially affect Russia's oil flows, though some evidence suggests that it might not be disastrous. The Middle East has sought alternative crude grades, and China has restricted US-sanctioned tankers from entering its ports.
Still, the market consensus is that 700,000 barrels of Russian crude could vanish from the marketplace, which might threaten the expected global surplus this year. But ING commodity experts are skeptical that the figure will be this large, writing in a recent research note:
"However, actual volumes lost will likely be smaller. Some buyers may choose to ignore these sanctions, and Russia may also rely more heavily on those tankers in the shadow fleet that are not sanctioned to continue the trade. This would put more strain on the shadow fleet. Over time, Russia will likely have to increase its fleet size in order for flows to continue uninterrupted.”
Ultimately, Moscow could adapt to the situation and redirect trade flows. At the same time, one party stands to benefit immensely from the sanctions. Anas Alhajji, a renowned energy economist, notes that the Biden administration's latest initiative will help Iran, as importers will turn to Tehran for their petroleum needs.
Biden His Time
Biden is having a grand old time in the home stretch of his presidency. In addition to Vice President Kamala Harris losing the November election and pardoning his son, he could be trying to make it harder for the incoming administration to govern. As Liberty Nation News has reported, on the economics front, inflation is making a comeback, creating a sticky and stubborn situation for Trumponomics 2.0.
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