As Russia prepares to takeover Odessa, a port city near the Black sea the trade embargo and economic sanctions imposed by the West as a reprimand for Putin’s Ukranian foray excluded Russian oil and gas until President Biden finally bit the bullet by banning all energy imports from Russia almost 12 days after the conflict.
President Biden was still mulling over banning Russian oil and gas, according to the White House press secretary Jen Psaki, but the President finally made the hard announcement which sent the indicies spiralling downwards.
America imports 8% of its oil requirement from Russia and Biden’s decision to cut off oil imports will further hike the Brent crude prices which are already touching 140 dollars a barrel (the highest since 2008) and could touch 200 dollars a barrel as per the IMF’s latest assessment in the near future. Experts are even talking of crude hitting an astronomical $300/barrel if the US and EU were to curb Russian oil from reaching America and other markets. Russia is the third largest exporter of crude.
Biden’s somersault on Trump’s policy of not allowing any drilling on federal land has ensured that oil and natural gas prices are sky rocketing in America (4 dollars a gallon and mounting) and the US continues to import more than 20 million barrels of crude and refined products a month from Russia (till the time President Biden announced an embargo on Russian energy) inspite of being one of the largest producer of crude thanks to it’s burgeoning domestic demand.
With the mid term elections round the corner and the US population feeling the pinch of skyrocketing oil and gas prices Biden has his task cut out.
As the White House sanctions oil and gas from Russia the American population -which is still reeling from the after effects of the pandemic and battling inflation (highest in 40 years) – could be in for more hard times. Biden seems to be tying himself in knots as his decision of banning oil rigging permits to oil barons on federal land has led to a reduction in production and increased America’s energy dependence. Moreover his election promises and obsession with climate change – where at a G -7 summit he said that according to his military advisors & chief of staff the biggest threat emanating for the US was global warming and carbon emissions – has ensured that the US continues to import oil and natural gas.
Thus at his first day in the Oval office he signed an executive order cancelling the permit for the keystone xl pipeline which would have delivered crude to America from Canada thus increasing the US’s energy independence. Trump had revived the keystone Xl pipeline project in 2017 which was expected to transport 830,000 barrels of Alberta tar sands oil per day to refineries on the gulf coast of Texas.
With UAE and Russia on the same page and not increasing production the IMF prognosis of crude touching a whopping $200 a barrel and possibly more will send the world economy into a tail spin. Europe’s energy dependence on Russia is more than 30% and it can ill afford to survive without gas from Russia even though the Nord stream 2 pipeline which was to supply gas to Europe from under the Baltic bypassing Ukraine has been provisionally suspended as part of the embargo. Europe especially Germany will find it hard to follow in Biden’s footsteps given their major dependence on Russian energy.
EU’s late decision to ban Russia from the SWIFT banking system will have some detrimental effect on Russia’s economy but will it cripple the economy remains to be seen as the country seems to have learnt it’s lessons from the Crimean invasion in 2014 by minimising the catastrophic effects it could have had on Russia’s economy by devising an alternate route to the dollar like China.
Amidst all this cacophony Russian companies are offering more tha 25% discount on the prevailing crude prices to shore up their finances. Putin during his December visit to Bharat signed a contract for the supply of 2 million tonnes of oil through Russia’s state run Roseneft through the port of Novorossiysk by December 2022. China is sure to lap up this offer of Roseneft and Russia given its antagonism for the US and it’s current strong relations with the former which a Chinese spokesperson described as rock solid.
It would be interesting to see how Bharat goes about this contract and if it bites the tempting bate of importing Russian oil at a discount even as the US President announced a ban on all Russian energy. Bharat could invite CAATSA (Countering American Adversaries Through Sanctions Act) provisions from the US which it has thus far avoided inspite of the S- 400 defence system purchase from Russia.
If Russia is able to find alternate system of payments with countries like China and possibly Bharat it will mitigate the effect of sanctions and allow Putin to keep marauding Ukraine.
For the moment it seems that gold reserves, crypto currencies alternate markets and most of all a weak US President saddled by domestic compulsions and policy blunders will keep Putin in the driver’s seat and prolong Zelensky’s tyranny.