With the attack on Ukraine causing the gravest humanitarian crisis on European soil since World War II, the U.S. is taking aim at the heart of the Russian economy: its energy sector. Secretary of State Antony Blinken said on Sunday the Biden administration is in “very active discussions” about barring Russian oil imports in the U.S., while a bipartisan group of senators has also called for a ban.
Oleg Ustenko, an economic adviser to Ukraine’s president, this past weekend penned an op-ed pleading with the world to cut off what he denounced as Russia’s “blood oil,” which supplies nearly $1 billion a day to Moscow and which he said is financing the war in Ukraine. “Buy nothing from Russia,” he wrote.
As such pleas resonate on Capitol Hill, analysts with Goldman Sachs said Monday that a vote in Congress on banning imports of Russian crude would likely pass with “fairly broad support.”
With U.S. gas prices nearing an all-time high, here’s what banning Russian oil imports would mean for Americans at the pump and elsewhere.
What a ban could look like
The U.S. is far less dependent on Russian oil than Europe. Last year, about 8% of U.S. oil imports came from Russia, while as of January almost no Russian oil came into the U.S, said Troy Vincent, senior market analyst at DTN, a commodities research firm.
Vincent and other analysts said that makes it more likely the U.S. will move on its own to penalize Russian energy, imposing oil-related sanctions that the European Union, which is much more dependent on Russian oil and gas, could join later.
U.S. sanctions could take two forms, Vincent said. The more severe option is for the U.S. to sanction Russian oil exports — not buying any Russian oil and refusing to engage with any nation that did, much as the U.S. approached sanctions on Iran in recent years.
The softer and more likely option is to impose a U.S. embargo on Russian energy. “We’ll say, ‘Nobody in the U.S. will touch Russian oil, but leave it to the EU to decide their own fate,'” Vincent said.
Less oil, pricier gasoline
In the short-term, eliminating Russian oil would likely drive sky-high gas prices in America even higher.
“We think that a complete ban on Russian energy imports would cause the prices of Brent crude oil and European natural gas to surge to $160 [per barrel],” economists at Capital Economics said in a research report.
That level would obliterate the all-time record of $147 a barrel, reached in the summer of 2008, and drive average gas prices in the U.S. above $5 a gallon, according to energy analysts and economists.
A Quinnipiac poll released Monday found an overwhelming majority of Americans in favor of banning Russian oil, even if it means higher gas prices. However, that attitude could change once motorists find themselves actually paying far more at the pump while inflation eats into other parts of their household budgets.
“We’re negative toward Russia until you start to really explain what the costs are to the U.S., and then people start to get a little bit softer,” said Clayton Allen, managing director for the United States at the Eurasia Group, a political risk research firm.
“If Biden wants to impose really strict measures, it might be better to do that sooner while public sentiment is on his side,” Allen said.
Gas prices, already a political albatross for President Biden, are clearly weighing on the diplomatic decision, and White House officials have underlined their reluctance to take any steps that would drive gas prices even higher.
With sanctions, “U.S. energy prices will have to increase — that may be a short-term increase, but it’s something they are obviously concerned about,” Allen said. “They haven’t spent as much time as I’d have expected trying to domesticate the idea that U.S. consumers may have to bear some of the costs of isolating and punishing Russia.”
Wild cards: Iran and Venezuela
To limit the impact of higher prices, the U.S. and international partners are releasing oil from reserves. Historically, each time the nation’s Strategic Petroleum Reserve (SRP) is opened, gas prices ease for two to three weeks, Allen said.
“If you’re concerned about gas being $5, an SRP release won’t pull gas back to $3.50, but it will prevent the oil market from seizing up like it did in the 1970s,” Allen said.
The Biden administration is also negotiating Iran’s reentry into a nuclear control agreement, which would bring Iranian oil back on the world market. Currently, Iran can produce about one-fifth of the oil that would be leave the market in the case of Russia’s exit, said DTN’s Vincent.
The U.S. is also looking to ease relations with Venezuela, which has been barred from selling oil to the U.S. since the Trump administration.
