U.S. President Joe Biden is banning imports of Russian oil, liquefied natural gas and coal, putting pressure on the Kremlin’s largest source of revenue in escalating sanctions over President Vladimir Putin’s invasion of Ukraine.
The move, which comes a week after Canada announced its own Russian oil embargo, will also bar U.S. citizens and companies from making any new investments in Russia’s energy sector.
“The United States is targeting the main artery of Russia’s economy,” Mr. Biden said on Tuesday morning at the White House. “The American people will deal another powerful blow to Putin’s war machine.”
Oil and gas royalties supply about 40 per cent of the Russian government’s budget, but the sectors have been mostly untouched by Western sanctions over fears of causing more increases in gas prices, which have soared since the invasion.
Mr. Biden acknowledged that he was moving forward without the backing of the European Union, which gets a third of its energy imports from Russia. The United States, by contrast, used Russian oil and petroleum products to meet only about 8 per cent of its import needs last year. “We can take this step when others cannot,” the President said.
Ukrainian President Volodymyr Zelensky, who has lobbied allies to cut off all trade with Russia, thanked Mr. Biden on Twitter. “Encourage other countries and leaders to follow,” he wrote.
In the short term, the embargoes may cause pain at the pumps for consumers in the United States, a drag on the U.S. economy and some disruptions for the Russian treasury. It is unclear, however, whether there will be much long-term effect.
Daniel Ahn, a former chief economist at the U.S. State Department, said price spikes will happen as the U.S. finds new fuel suppliers and Russia searches for new customers. But over the medium term, he contended, little would change significantly unless production increased or consumption fell.
“The reshuffling is going to add transaction costs and nuisance costs, but I would say in the grand scheme of things, what really matters is the supply and demand balances. The reshuffling is a second-order effect,” said Mr. Ahn, now a fellow with the Wilson Center think tank in Washington.
The invasion has pushed the average gas price in the United States to US$4.17 per gallon, according to the American Automobile Association, the highest in 14 years. At the same time, inflation is at a 40-year high in the U.S. overall. With Mr. Biden’s Democrats trailing in polls ahead of midterm congressional elections later this year, the President was initially reluctant to impose an embargo.
Western oil companies have already been pulling out of Russia, with U.K.-based Shell announcing on Tuesday it would halt all purchases of Russian crude and shut down gas stations in the country.
Alex Pourbaix, chief executive officer of Cenovus Energy Inc., one of Canada’s biggest oil companies, said surging prices will likely prompt Canadian oil and gas producers to plow more money into increasing production, something they have been hesitant to do in recent months. He said prices would ultimately even out.
“As prices go up, they tend to drive demand out of the market and encourage more supply, and over time, we’ll see a rebalancing and probably a much more modest price level than we’re seeing right now,” he said.
The pipeline network between Canada and the U.S. currently has unused capacity, after Enbridge Inc. replaced its Line 3 late last year. However, Canadian energy companies do not have the ability in the short term to make up for all of the forgone Russian shipments.
The White House has already rejected calls to rescind Mr. Biden’s cancellation of the Keystone XL pipeline expansion from Canada, saying this would not actually increase the supply of oil. “The Keystone was not an oilfield. It’s a pipeline,” press secretary Jen Psaki said this week.
Mr. Biden on Tuesday rejected Republican demands to cancel a ban on new oil drilling permits on federal land. He said there were already 9,000 unused drilling permits, and that expanding oil and gas extraction was a worse strategy for achieving energy independence than getting off fossil fuels.
“Loosening environmental regulations or pulling back clean energy investment … will not lower energy prices for families,” he said.
The Biden administration has been speaking with Saudi Arabia and Venezuela, which control some of the few oil reserves in the world that could be immediately ramped up to meet increased demand. But dealing with these authoritarian regimes – both of which Mr. Biden has criticized over their human rights abuses – is ethically fraught.
The United Kingdom on Tuesday also announced that it would phase out Russian oil imports by the end of the year. It takes in about 8 per cent of its supply from Russia.
The EU, however, has pushed back on any such sanctions. German Chancellor Olaf Scholz this week warned that such a move would jeopardize heat, power and transportation across the continent, which imports two million barrels of oil a day from Russia.
“It’s definitely a different ballgame for the U.S. compared to Europe,” Abhi Rajendran, head of global oil and North American energy research at Energy Intelligence, said in an interview. The disruption to the market could nudge the price of oil up to $150 a barrel, he said.
Ottawa unveiled its ban on Russian oil and petroleum products last week. Canada last year imported only about 10,000 barrels of refined petroleum products from Russia per day, and no crude oil, according to Rory Johnston, managing director at the financial research firm Price Street Inc. He said Canada’s embargo was mostly symbolic.
“At the point when Canada announced that, it was still kind of a red line for most NATO allies – they weren’t going to touch Russian energy exports,” Mr. Johnston said. “So the charitable interpretation of that is that it helped push at least the scope of discussions toward taking an axe to Russian energy export earnings.”
The Globe and Mail
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