Biden Implements Russian Energy Import Ban

FRIDAY, MARCH 11, 2022


Earlier this week, President Joe Biden signed an executive order to ban the import of Russian oil, gas and coal to the United States in response to the Russian invasion of Ukraine. While Russian oil reportedly makes up a small percentage of U.S. oil imports, prices have already been impacted by the ban.

About the Ban

According to the White House’s Fact Sheet, the Executive Order signed March 8 bans:

  • The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal. Last year, the U.S. imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia and this step will deprive Russia of billions of dollars in revenues from U.S. drivers and consumers annually;
  • New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s efforts to expand energy production inside Russia; and
  • Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.

The new policy stipulates that new Russian energy contracts will not be allowed and that existing contracts will have 45 days to end, a senior Biden administration official told reporters on a call. According to The Washington Post, Russian oil accounts for roughly 3% of U.S. consumption, with sources in the country expected to make up for the imports.

“Americans have rallied to support the Ukrainian people and have made it clear we will not be part of subsidizing Putin’s war,” Biden said Tuesday at a press conference. “This is a step that we’re taking to inflict further pain on Putin, but there will be costs as well here in the United States.

“I said I would level with the American people from the beginning, and when I first spoke to this, I said defending freedom is going to cost us as well in the United States.”

President Biden added that he will keep working to mitigate the cost increases and reduce dependence on foreign oil and fossil fuels.

The White House reports that it has committed to releasing more than 90 million barrels from the Strategic Petroleum Reserve, with an emergency sale of 30 million barrels announced last week. Conversations are also reportedly being held with energy producers and consumers on furthers steps that can be taken to stabilize the energy supply.

Noting that U.S. oil and gas production is approaching record highs, White House Press Secretary Jen Psaki said Monday that the oil and gas industry has 9,000 approved permits to drill on public lands that it has yet to use. Additionally, the Administration added that oil and gas companies “should not use Putin’s war as an excuse for excess price increases or padding profits.”

Another method of avoiding higher gas prices, according to the release, will be to speed up the transition to clean energy and reduce dependency on fossil fuels.

“This crisis is a stark reminder: To protect our economy over the long term, we need to become energy independent,” Biden said. “It should motivate us to accelerate the transition to clean energy.”

On Wednesday, the House of Representatives approved legislation that would put these restrictions into law in a 414-17 vote, with the bill now heading to the Senate.

Policy Impacts

Anticipating that the oil and gas ban will push inflation higher in the country and affect several industries, economists have said that the scale of the consequences will be dependent on other global decisions to ban imports.

“Things have been so volatile,” said Omair Sharif, founder of Inflation Insights, noting to The New York Times that it was difficult to tell how much of the rise in oil prices in recent days traces back to this specific ban. He added that national average gas prices could rise to nearly $4.50 this month, “assuming we don’t move any more.”

A ban across many countries “would severely reduce and disrupt energy supply on a global scale and already high commodity prices would rise,” Caroline Bain, an economist at Capital Economics wrote. She added that the price of the global oil benchmark, Brent crude, would settle in at about $160 per barrel in that case.

The Times reports that the Brent crude price jumped by about 6% to roughly $130 per barrel by the middle of the day of Biden’s announcement, compared to about $78 per barrel at the end of 2021. Additionally, the national average price hit $4.17 on Tuesday, according to AAA, a new high for regular unleaded gas. Since Russia invaded Ukraine on Feb. 24, oil prices have reportedly risen about 30%.

While higher prices could impact consumer’s budgets and spending, however, economists note that some have been able to save money of the course of the pandemic.

“It is risky to assume that the old rule about higher prices depress overall U.S. economic growth still applies,” Ian Shepherdson, an economist at Pantheon Economics, wrote in a recent note.

Additionally, in response to the ban, Russian President Vladimir Putin issued a decree instructing his Cabinet to produce a list of items to stop importing and exporting to 48 countries until the end of 2022. The list reportedly includes more than 200 products, including exports of telecoms, medical, vehicle, agricultural and electrical equipment, as well as some forestry products such as timber.

In additional reports, it was noted that the crude oil shock is also expected to negatively impact the coatings industry, givent that the manufacture of paint requires more than 300 items, most of them being petroleum-based. Rising oil rates could also increase the cost of producing items such as titanium dioxide.

   

Tagged categories: AS; Asia Pacific; Economy; EMEA (Europe, Middle East and Africa); EU; Government; NA; North America; Oil and Gas; President Biden; Program/Project Management; Raw materials

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