Crude oil volatility spiked sharply on Monday with prices shooting up as high as $139 per barrel after White House said it was discussion with allies to put embargo on Russian crude.
U.S. Secretary of State Antony Blinken said the Biden administration and its allies are in talks about banning the import of Russian oil as pressure mounts to hit back harder at the world’s third-biggest producer.
However, at a later stage reports emerged, the Biden Administration is considering embargo on Russian oil imports in the U.S. without the participation of allies in Europe, for the time being, according to sources of Bloomberg, as reported by the journal.
There possibly is a thin line between U.S. putting and embargo on Russian oil compared to Europe joining hands to put one.
Earlier Germany and other European nations have signaled similar opposition, with German Economy Minister Robert Habeck telling reporters on Thursday, “I wouldn’t support an embargo on imports of fossil fuels from Russia.”
He added, “I would even speak out against it, because we would threaten the social peace in the republic with that.”
It is important to note that U.S. imports 5% of its crudes from Russia and a ban could lead to inflationary pressure through multiplier effect from input materials.
However, for Europe the attention shifts to heating home, as reported by the Fotune, the way Adam Pankratz put its, a professor at the University of British Columbia’s Sauder School of Business, “but for countries like Germany, which source half their gas from Russia, the worst case is that people start dying because they can’t heat their homes,”
“It means freezing and possibly dead Germans,” he said.
Russia is the world’s third-largest oil producer and roughly 60% of Russia’s oil exports goes to Europe and the another 20% to China. U.S. only accounts for 5% of its crude imports which is marginal relatively.
The force for banning of Russian oil is stronger in U.S. as politicians focus on achieving political goals, in other words myopic on economic consequences. The U.S.’s minor reliance on Russian oil, public opposition to the import is mounting. Democrats and Republicans on the Senate Energy Committee floated a bill on Thursday that would end the import of Russian crude oil and liquefied natural gas.
Professor Pankratz told Fortune that if there is an embargo of Russian oil, the U.S. won’t be running out of oil. “If it really goes drastic, the U.S. has a strategic petroleum reserve,” he said.
He notes the real concern is if all countries stopped importing oil from Russia, available supply would tighten, and “the price of oil would go through the roof,” which would add inflationary pressure, making heating homes and driving cars more expensive in the West.
Although earlier, White House press secretary Jen Psaki said on CNN on Wednesday that what Biden “does not want to do is topple the global oil markets or the global marketplace, or impact the American people more with higher energy and gas prices.”.
However, Biden’s tone soon came out to be in line with Democrats and Republics who was promotion the ban after Russian President Vladimir Putin announced their war would continue unless Russian demands are met.
Nonetheless, European leaders seems to be muted on the ban as of now as they are considering the greater economic impact the embargo on Russian oil would have, where EU is already struggling with inflationary pressure and tight supply chain.
“For Europe, the situation is much more dramatic,” says Pankratz, who notes that the region “is in such an energy dependent situation on Russia, there is not a lot they can do to drop the hammer.”
