President Biden announced on March 8, that the United States will ban imports of oil, liquefied natural gas, and coal from the Russian Federation. The real question at play is, will this in turn actually hurt the Russian economy, or will it backfire on the United States? In order for President Biden to be successful with this embargo, three things are a must, the U.S. finding other options to cover for lost Russian oil barrels, Chinese cooperation with the Western nations, and Europe ending its long-term reliance on Russian oil.
The biggest industry in Russia is Russian oil and gas companies. This is also, in turn, their biggest source of income, with Biden banning oil and gas from Russia he did it so that his European counterparts can follow along because only 8% of all oil imports to the U.S. come from Russia, so it wouldn’t really hurt the United States only if it finds a way to cover the 8% hole.
Currently, the United States imports roughly 700,000 barrels from Russia daily, which makes up 8%. The United States has two options; negotiate with the authoritarian government of Venezuela, or negotiate with the Middle East OPEC countries such as; Saudi Arabia, United Arab Emirates, and Kuwait to drill more petroleum. But this one option is a tough turn because OPEC countries are involved in something called OPEC+, which is an organization comprising of the 13 OPEC countries and 10 of the world’s major non-OPEC oil-exporting countries.
If the U.S. is successful with its negotiating with other OPEC countries, then everything might be fine at home, including gas prices going down after it hit an all-time high of $4.17 on average. In order for this sanction to really hurt the Russians, China must also abandon its dependence on Russian gas. The Chinese represent 15.4% of Russia’s petroleum exports, with just Saudi Arabia selling it more, so more dependence on the Saudis by the Chinese will effectively hurt the Russians badly.
Europe must side with the U.S. in Russian oil embargoes, but this is almost impossible because, countries such as North Macedonia, Moldova, and Bosnia and Herzegovina, they get 100% of their gas supply from Russia. Among other European nations profoundly reliant upon Russian gas were Finland and Latvia, in which it imported more than 90% in 2020. Bigger economic countries such as Germany also import more than 49% of Russian gas supplies.
If Europe doesn’t follow in the steps of the United States, then these sanctions will in turn not be effective, as Russia can just turn its gas export focus on China, which will be more than happy to buy Russian barrels at a lower cost and to add on to their already solid 26 million barrel reserves.
CIMA Law Group Blog 