The U.S. Could Ban Imports of Russian Oil. What Exactly Does That Mean?
On March 6 Secretary of State Blinken said that the U.S. and allies were looking “at the prospect of banning the import of Russian oil, while making sure that there is a still an appropriate supply of oil on world markets.” Oil prices have climbed more than 25% over the last five sessions alone, the fastest price increase in a decade. Oil prices had been rising ever since Russia invaded Ukraine last week.
Here’s what would happen if the U.S. imposed oil sanctions on Russia.
How Much Oil Does the U.S. Import From Russia?
Russia is the third-largest producer of petroleum after the U.S. and Saudi Arabia, exporting almost 5 million barrels per day of crude oil in 2020, according to the U.S. Energy Information Administration. The U.S. imported about 8% of its oil and refined products from Russia last year. Most of the oil the U.S. imports come from Canada, Mexico, and Saudi Arabia.
Who Signs Off on an Oil Ban?
Sanctions generally fall under the authority of the executive branch, and tend to take shape as an executive order. Before signing off on sanctions, the president consults with his National Security Council and other agencies to determine the impact of the sanctions. In this case, the Biden administration is also consulting with its allies on the sanctions, Blinken said.
Who Executes the Sanctions?
The executive order typically gives the Treasury the powers to execute the sanctions, in cooperation with the Secretary of State. Within the Treasury, it falls to the director of the Office of Foreign Assets Control, who signs off on the sanctions. Sanctions officially go into effect on the date designated by the Treasury Department, but it can take several days, weeks, or even months for the entities on the receiving end to feel their impact.
How Long Will It Take for the Ban to Impact Oil and Gas Prices?
Markets would most likely respond to the sanctions in real time. Since Blinken’s Sunday night announcement, oil prices jumped 5% to 10%. A lot of that could be panic driven, as prices have calmed from Sunday night’s spike, but prices will remain high and volatile for a few months, Wells Fargo analysts wrote in a research note Monday.
When Was the Last Time the U.S. Levied Sanctions Against Oil Imports?
The U.S. has a long history of using oil sanctions as a tool in foreign affairs. The latest sanctions, passed in 2011, discourage oil importers from purchasing crude oil from Iran. Those sanctions intensified in 2019 under the Trump Administration, which had the aim of reducing Iran’s oil exports to zero. The U.S. also enacted oil sanctions against Russia through an executive order since 2014, which applied to certain Russian oil companies.
How Could the Government Reduce the Impact of Sanctions in the U.S.?
The Biden administration has approved the release of 30 million barrels of oil from the Strategic Petroleum Reserve, and coordinated with other countries to release an additional 30 million. The move is designed to add supply of oil back into the marketplace to make up for constrained Russian supply. Analysts believe there could be more releases ahead, especially if negotiations with other oil producers stall.
What Happens Next?
“While Russia’s economy will be hurt the most, Europe will likely fall into a recession and U.S. growth will be hit, with consumers feeling the most pain,” wrote Hussein Sayed, chief market strategist at Exinity. The sanctions and subsequent shock to oil prices could also lead the U.S. and other major economies to adapt to the changing energy environment, said Paul Donovan, UBS Global Wealth Management chief economist in a call on Monday.
“The uncomfortable truth is resilience in supply chains has taken the front seat over saving the planet, and I am expecting nuclear, coal, shale and gas to get a new lease of life as the price of bringing Russia to heel and isolating them,” wrote Jeffrey Halley, Oanda senior market analyst.
This content was originally published here.