Berlin, Brussels, Dusseldorf, Houston, London, Zurich In response to Vladimir Putin’s war of aggression in Ukraine, the US and Britain have imposed further punitive measures against Russia. Washington is stopping imports of Russian oil, and London is phasing out oil imports at the end of the year.
The markets reacted to the news with strong swings: American crude oil has meanwhile increased in price by eight percent to over 129 dollars per barrel (around 159 liters). The stock markets, in turn, temporarily turned negative. The German leading index Dax lost almost one percent to 12,730 points, but then recovered again.
According to Economics Minister Robert Habeck, stopping oil imports from Russia was closely coordinated with the Europeans. Germany will not follow, however, and there are no corresponding demands from the USA. The situation is more favorable for the Americans – unlike some European countries, the USA is not one of the major importers of Russian oil.
In the event of a gas and oil embargo in Europe, Habeck fears “a serious economic crisis”. Economists and the Leopoldina Academy of Sciences come to different conclusions in studies: From their point of view, an energy embargo for Germany is “manageable”, the lights “by no means” went out.
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In the meantime, there are also calls from the economy for an import stop for Russian energy supplies. For example, Lars Brzoska, head of mechanical engineering company Jungheinrich, told Handelsblatt: “Russia must be turned off the largest source of money that is financing this war.”
Biden is worried about gas prices
As a result of the war in Ukraine, pressure on the US government, including from Congress, had recently increased to add an import ban on Russian oil to the punitive measures already imposed. The effects for Russia are probably small for now. The US imports around 700,000 barrels (159 liters each) of Russian crude oil and oil products per day, which accounts for about five percent of Russian exports.
Washington had closely coordinated its sanctions policy with the Europeans in recent weeks. There have also been intensive talks recently about the oil boycott, and the EU countries were not surprised by Joe Biden’s decision.
Economics Minister Habeck confirmed on Tuesday that the US had not insisted that the EU join the import ban. There are two reasons:
- For one thing, Europe is much more dependent on Russian imports.
- On the other hand, a joint boycott would drive up oil prices even more. Biden already has to fear the frustration of American voters because fuel prices are also rising rapidly in the USA.
Federal Chancellor Olaf Scholz made it clear on Monday that abandoning Russian energy imports is not yet an option for Germany. The sanctions were deliberately designed in such a way that they were “sustainable,” said Scholz. This is considered a crucial point in the debate: the federal government fears that European unity on the sanctions against Russia will be jeopardized if high petrol prices stir up displeasure among the population.
Countries like Italy, which are also dependent on Russian energy supplies, make similar arguments. On the other hand, in Eastern Europe there are calls for the last economic ties to Russia to be cut in order to dry up Putin’s war chest. Russia currently earns more than half a billion euros a day from oil exports.
Last year, according to the US Energy Information Administration (EIA), Russia was the third most important country for imports of crude oil and petroleum products for the US – behind Canada and Mexico. Imports from Russia, at 672,000 barrels per day, accounted for almost eight percent of all US imports in this category. Natural gas from Russia is not shipped to the United States.
Russian Deputy Prime Minister Alexander Novak warned on Monday that oil prices could reach $300 a barrel or more if the US and Europe banned imports from Russia. The consequences for the world market would be “catastrophic,” warned Russia’s former energy minister.
This is how the Handelsblatt reports on the Ukraine war:
The main question now is how to expand oil and gas production and export from other countries. On the very day that the United States stopped oil supplies from Russia and Joe Biden asked the oil export cartel Opec for help, the world’s largest oil company Saudi Aramco intensified its cooperation with China: The Aramco subsidiary SAAC will build refineries and petrochemical plants with the Chinese state oil company Sinopec Expand China and Saudi Arabia.
This was announced by Aramco on Tuesday at its headquarters in Dhahran, Saudi Arabia, just hours before the announcement of America’s end to Russian oil. Aramco is concerned with its “expansion strategy in Asia,” said Mohammed Al Qahtani, Aramco’s senior vice president of downstream.
As the world’s largest oil exporter, Saudi Arabia leads Opec and, together with Russia, founded the “Opec plus” group at the height of the corona crisis in order to stabilize the oil price, which had fallen sharply during the corona crisis, through joint production limits.
“The Americans helped the Opec-plus block at the height of the corona crisis so that their efforts to stabilize the oil price bore fruit,” energy expert Christof Rühl told Handelsblatt. Now OPEC must help the United States.
Saudi Arabia, the United Arab Emirates and Kuwait have enough free production capacity to “stabilize quantities and prices” in the current situation by expanding their oil production, according to Rühl. So far, the Opec-plus countries had promised to bring 400,000 barrels more to the market per day, but did not implement this.
“Until now, Opec plus was just a lift up,” Rühl said, but the US would no longer allow that. Globally, there are 1.5 billion barrels of crude oil in strategic oil reserves – enough to bring 1 million barrels of oil to market every day for 1,500 days. “A mixture of dissolving strategic oil reserves and increasing the production volume,” sees Rühl as a solution for a quick normalization of the oil price crisis.
Venezuela could also play a more important role in the future. Venezuelan President Nicolás Maduro has signaled interest in improved relations with the US.
The West is looking for new crude oil suppliers.
(Photo: Bloomberg via Getty Images)
According to estimates by investment bank RBC Capital Markets, a US boycott is likely to remove between three and four million barrels a day of oil and oil products from the market – even if Europe continues to import commodities from Russia. Projected growth in the US shale oil industry may not be enough to offset that amount: RBC Capital Markets expects US oil production to grow by around 1.3 million barrels a day on average this year.
Another two million barrels a day could be extracted as OPEC’s oil-exporting nations ramp up their reserve capacity. A return of Iran to the oil market could bring another million barrels a day, according to the calculations – and Venezuela could deliver a maximum of 600,000 barrels a day. Combined, that would be almost five million barrels per day – and in theory, enough to offset Russian imports.
In practice, however, this is difficult to implement, says Helima Croft, raw materials expert at RBC: Because Russia is also part of the expanded Opec-plus network.
Even a new nuclear deal with Iran does not bring immediate relief: “Even if a new Iran deal is agreed tomorrow, Iran would first have to reverse its progress in the nuclear program and the IAEA would have to review it,” says Croft: “And that takes time Months.”
More: Russia’s economy: The sanctions are hitting the country with full force