President Biden announced on March 8 that the country would impose an immediate ban on oil and gas imports from Russia. This ban is an attempt to catch up to Shell Oil which announced it would no longer buy Russian oil as the EU announces that it too will eliminate Russia oil ad gas imports to supply its energy needs.
President Biden announces U.S. ban on Russian oil imports:
"Today I'm announcing the United States is targeting the main artery of Russia's economy…The American people will deal another powerful blow to Putin's war machine." pic.twitter.com/3HtvXxEWfR
— CBS News (@CBSNews) March 8, 2022
“Today, I am announcing the United States is targeting the main artery of Russia’s economy. We’re banning all imports of Russian oil and gas and energy,” said Biden in his statement from the White House. “That means Russian oil will no longer be acceptable at US ports, and the American people will deal another powerful blow to Putin’s war machine.”
Sanctions against Russian oil and gas products had mostly been avoided, given the likely consequences on the global economy. However, pressure for Biden to make a move has been growing from within and outside the United States. The ban is the last addition to a tirade of sanctions imposed by the US and its allies on the Kremlin for causing the largest armed conflict in Europe since the Second World War. It has allegedly had bipartisan support in Congress.
The ban on Russian oil and gas has strong bipartisan support in the Congress and in the country.
Americans have rallied to support the people of Ukraine and made it clear we will not be part of subsidizing Putin’s war.
— President Biden (@POTUS) March 8, 2022
During his State of the Union Address, Biden vowed to bring more military assistance to Ukraine amidst its continued efforts to repel the Russian forces. This promise manifested with the White House requesting over $10 billion to cover additional humanitarian, security, and economic assistance for Ukraine and US Central European allies.
He once again pulled through with the promise, voicing out support for the people of Ukraine with the ban of Russian oil imports, stating, “Russia may continue to grind out its advance at a horrible price, but this much is already clear: Ukraine will never be a victory for Putin. Putin may be able to take a city, but he’ll never be able to hold the country.”
President Biden signed the executive order on the ban after he made the announcement. According to White House Press Secretary Jen Psaki, this order is in effect immediately, disallowing new contracts, but has allowed buyers 45 days to deliver on already existing ones. This order also prohibits new US investments in Russia’s energy industry and subsequently bans Americans from financing foreign investments that will eventually go to said Russian energy industries.
According to Biden, the sanctions imposed by the West have already caused the Russian economy to “crater” and pledged to continue increasing pressure on Moscow to stop their baseless war that cost both sides countless lives and the displacement of millions of Ukrainians.
“One ruble is now worth less than one American penny,” said Biden, who ensured that Russia would be unable to increase the value of its currency after their removal from the SWIFT financial system. He also noted that private entities have voluntarily withdrawn from operations in Russia, dealing another blow to its economy. “The US stock exchange has halted trading of many Russian securities. And the private sector is standing united against Russia’s vicious war of choice.”
How will the ban affect US oil prices?
Retail gasoline prices in the United States surged to an all-time record and prices are expected to keep rising as President Joe Biden announced a ban on Russian oil and other energy imports in retaliation for the invasion of Ukraine https://t.co/BSlCZfiAk4 pic.twitter.com/w6NOeNZyxM
— Reuters (@Reuters) March 8, 2022
Oil prices rose upon news of Biden’s announcement. The price of oil settled around 4% higher on March 8, with Brent crude futures settling at $127.98 a barrel, a 3.9% increase, with US crude futures settling at $123.70, 3.6% higher. The retail price of gasoline in the US ballooned to record highs on the day of the announcement, with an average cost of $4.173 per gallon. Biden insists that the US government will do everything in its power to reduce the impact of the ban.
“I’m going to do everything I can to minimize Putin’s price hike here at home. In coordination with our partners, we’ve already announced that we’re releasing 60 million barrels of oil from our joint oil reserves. Half of that — 30 million is coming from the United States.”
U.S. oil consumption is nearly 20 million barrels a day so 60 million barrels from the Strategic reserve would meet U.S. consumer and industrial energy needs for about three days.
Critics of the administration say that drawing from the Strategic Reserve will not solve an oil crisis that is partly due to sanctions on Russia, but also inflation and energy policies that have reduced U.S. oil output from a pre-COVID peak of 12.8 million barrels to 12 million. Moreover, the Strategic Reserve only contains a 36 day supply of oil for the U.S. held in underground tanks in Texas and Louisiana.
The President also increased the royalty fees for each barrel of oil raised from government leases, adding to the cost per barrel and making extraction by oil companies less attractive unless the price of oil rises substantially higher than domestic production that includes these higher fees.
The administration correctly states that some 3,000 unused oil leases are in the hands of the oil companies, but drawing oil from the leases first requires a nearly ten-year-long process of planning, exploration, and permitting before the first barrel can be raised. The administration can slow-walk this process making it take even longer, allowing to claim that plenty of oil leases exist while using, bureaucracy and regulation to prevent them from being used.
So far, the President has not announced any plans to ease regulation on these leases to bring them into production more quickly, restarting the Keystone-XL pipeline. This pipeline would have moved 830,000 barrels of Canadian oil per day more than 1,200 miles to oil refineries in Texas. This amount of oil represents nearly 4,400 tanker trucks worth of oil per day moving at a much cheaper cost than moving it by truck or rail.
The President also warned companies who will use this opportunity for price gouging, directly addressing oil and gas companies:
“To the oil and gas companies and to the finance firms that back them: We understand Putin’s war against the people of Ukraine is causing prices to rise. We get that. That’s self-evident. But it’s no excuse to exercise excessive price increases or padding profits or any kind of effort to exploit this situation.” Economists have pointed out that oil company profits amount to about 7 cents a gallon of gas while gov’t taxes on that same gallon are 48 cents a gallon on average.
Since most consumer goods move by gasoline-powered transport like trucks and trains, just about anything shipped in this way will see a price increase as well, lowing the American standard of living along with inflation.
Will Europe join the ban?
In Biden’s address, he stated that although the US made this decision in close consultation with its allies, it does not expect Europe to follow suit.
“The United States produces far more oil domestically than all the European countries combined. In fact, we’re a net exporter of energy. So we can take this step when others cannot.”
Russian imports make up a fraction of the US energy portfolio at around 8% in 2021, only 3% of which was crude oil, but the cost of Russian oil was significantly less than U.S. production. The US Department of Energy reports that US companies essentially implemented their own ban after they cut ties with Russia, causing oil imports to drop to zero in the last weeks of February. Biden said that the US is currently coordinating closely with European governments to “develop a long-term strategy to reduce their dependence on Russian energy.”
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