The United States and its allies from European Union are considering the Russian oil ban causing fears regarding market supply. Oil companies have spiked their prices as the return of Iranian crude oil is also getting delayed. Brent and West Texas Intermediate (WTI) both reached their highest levels since 2008. According to reports, Brent rose 6.3% to 125.55 USD per barrel and WTI increased by 6.7% to 123.37 USD. European gas prices also spiked by 80% as soon as the US said it was talking about banning Russian oil. European gas is the most used fuel across global industries. Moreover, the prices of some key commodities and raw materials that eventually make food, clothes, and vehicles for humans have also risen.
Russian Oil Ban can Accelerate Inflation
Experts predict that this increase in prices is just the tip of a huge iceberg. Most of Europe relies on Russian crude oil and gas but is forced to consider the idea of a Russian oil ban in the wake of the Ukraine invasion. On the other hand, the US may have less dependency on Russian products, but a ban would also drive up prices for US consumers. Analysts estimated that cutting off oil exports from Russia could cause a shortfall of 5 million barrels per day and push prices up to 200 USD, resulting in a global recession. According to the latest reports, the EU is still exploring the impacts but the US would possibly move forward with the ban independently.
Others countries like Japan which cannot immediately replace Russian oil imports would not be supporting the western ban on Russian products. A bipartisan group of US senators introduced the bill regarding the Russian oil ban but the Biden administration is still weighing the impacts on energy prices and the global oil market. The US said that the approach depends on the coordinated efforts of its allies and partners, especially the EU. Currently, the ban is still premature speculation and there is no full-fledged plan for implementation.
Is there No Option Other than Russian Crude Oil?
Companies are forced to buy oil from Russia to meet the demand and ensure timely supply to all over Europe. Russia is the 3rd largest oil producer after the US and Saudi Arabia. According to reports, it exported almost 5 million barrels a day in 2020 and more than half of those went to Europe while 42% went to Asia and other parts. Most oil imports in the US come from Mexico, Canada, and Saudi Arabia, but in recent years it has been increasingly importing oil from Russia as well. Reportedly, in 2020, the US imported around 200 million barrels from Russia.
Royal Dutch Shell, the major oil supplier recently purchased 100,000 metric tonnes of oil from Russia while western powers were talking about the Russian oil ban. Meanwhile, the US and its allies are also holding talks to revive Iran Nuclear Deal as Russia demanded a guarantee that its sanctions over conflict with Ukraine must not affect its trade with Iran. France said that Russia resorted to blackmail for reviving the nuclear deal. Iranian crude oil can cover much of the demand without Russia if its production is increased with nuclear projects. However, it could take many months to restore the oil flows even if a nuclear deal is revived today.
US Seeking Alternatives
A possible Russian oil ban increased pressure to identify alternative supplies. After Russia started attacking Ukraine, the US strengthened sanctions on Russian technology exports. Analysts estimated that the Biden administration may visit Saudi Arabia and hold talks about increasing energy production.