US President Joe Biden on Tuesday, 8 March, announced that he was banning all imports of oil and natural gas from Russia in order to further economically isolate Vladimir Putin's regime after the invasion of Ukraine.
The ban blocks US companies from purchasing crude oil, petroleum products, liquefied natural gas, and even coal from Russia.
"Americans have rallied to support the Ukrainian people and have made it clear we will not be part of subsidising Putin’s war," the US president stated during a speech at the White House.
The move is yet another economic punishment that is being meted out to the Kremlin after the US, the UK, the EU, and Australia among other countries imposed sanctions on Putin, Russian oligarchs and banks, and even the Russian central bank.
Why is the oil ban such a big deal? What are the facts and the numbers? How is it going to affect the US economy, and what are the alternatives for the US and Russia for imports and exports, respectively?
Additionally, the US is the largest producer of oil in the world, followed by Saudi Arabia, and then Russia. So, why does it need to import oil in the first place? Let's unpack it all.
The Basic Facts
Russia is the third-largest oil producer in the world, but it is also the largest oil exporter in the world.
By this we mean exports of both crude oil and oil products combined.
When it comes to just crude oil, it is the second-largest exporter behind Saudi Arabia.
In total, Russia exports around 7 million barrels of crude oil and other petroleum products per day.
Of all the oil imported by the US, Russian oil accounts for around 7 percent.
Image 1: top 5 sources of US petroleum imports, and US crude oil imports.
Source: Energy Information Administration of the US (eia.gov)
According to the White House statement concerning the ban, in 2021, "the U.S. imported nearly 700,000 barrels per day (BPD) 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."
The exact number, according to Energy Information Administration is 672,000 BPD.
Within this, the US imported approximately 200,000 BPD of crude oil and 500,000 BPD of total petroleum products from Russia, says the data provided by the AFPM (American Fuel and Petrochemical Manufacturers).
The total import numbers are higher than what they were in the years preceding 2021:
2020 – 540,000 BPD
2019 – 520,000 BPD
2018 – 375,000 BPD
Image 2: yearly data of imports
Source: Energy Information Administration of the US (eia.gov).
A closer look, however, reveals that the recent monthly imports of oil and petroleum products from Russia have been going down:
October 2021: 635,000 BPD
November 2021: 595,000 BPD
December 2021: 405,000 BPD
Image 3: monthly data of imports
Source: Energy Information Administration of the US (eia.gov).
Conclusion 1 – US Can Afford the Import Ban
Crude oil is very important because it is refined into petroleum products used for transportation. The products include gasoline, diesel, and jet fuel.
As the data from image 1 shows, Russia doesn't even feature in the list of the top five countries that the US imports (only) crude oil from.
Russian crude accounts for only 3 percent of US imports.
The US needs Canada to meet more than 60 percent of its crude imports, and more than 50 percent of its total petroleum requirements.
Canada is followed by Mexico, and then comes Russia in the total petroleum imports category.
Therefore, the first important conclusion is that the US does not desperately need Russian oil.
Conclusion 2 – Russia Can Also Afford the Ban, Thanks to Europe
It is important to keep in mind that only 8 percent of Russia's oil exports go to the US.
Russia's key customer is Europe.
The European Union gets around 40 percent of its gas and over 25 percent of its oil from Russia.
For instance, Germany, Europe's largest economy, is dependent on Russia for more than 60 percent of its gas supply.
Slovakia, Finland and Lithuania are the European countries that depend most on Russian oil imports. All the data is provided here.
Therefore, unless Europe imposes a similar ban, the Russian economy will be not to be too hurt by the import ban announced by Biden.
If an oil and energy embargo is being viewed as the means to push back the Russians from Ukraine, then the US can't make much difference alone.
Europe has to join in. Given its oil and energy dependence on Russia, this seems unlikely at the moment.
Germany's Economy Minister Robert Habeck defended Europe's decision to not join in the ban.
"We (European countries) have maneuvered ourselves into an ever-greater dependency on fossil energy imports from Russia in the last 20 years. That is not a good state of affairs", he said on 8 March, as quoted by AP.
Conclusion 3 – Oil Prices Will Spike
Even the mere prospect of an oil ban had already skyrocketed prices by 30 percent last month.
Meanwhile, the price of crude oil has touched $130 a barrel.
A month ago, it was at $90 a barrel.
Analysts are warning that, with the ban in place, prices could go as high as $160 or even $200 a barrel as Russian crude continues to get boycotted.
That is inevitably going to hit the US market too.
"The fear is that if we can’t get oil, where’s it going to come from? They have made 7 percent of the world’s production toxic… that production is essentially unbuyable in many ways, and if you do that in an already very tight market, the demand and prices are going to go up," Adam Pankratz, who is a professor at the University of British Columbia’s Sauder School of Business, told Al Jazeera.
Gasoline prices are already surging, with a gallon of regular gasoline being sold in the US for an average of $4.17 on 8 March.
This could go up to $5 a gallon, experts say.
Why Did US Need Oil From Russia?
If the US is the largest oil producer in the world, why did it need Russian imports in the first place?
The answer is that US produces an abundance of light crude oil, whereas it imports heavy crude oil from Russia and the Middle East.
Additionally, overseas heavy oil, even after covering the costs of shipping, is cheaper than crude oil produced at home, due to the high costs of getting the oil out of the ground ("lifting costs").
These lifting costs are high in the US and low in other other countries like Russia and Saudi Arabia, hence the need to import heavy crude.
Alternatives for US Imports and Russian Exports
The US could ask for more heavy crude from allies like UAE and Saudi Arabia.
It could even turn to its rivals.
US leaders have already been reaching out to Venezuela, a country that has been sanctioned by the White House.
The Venezuelan government on 8 March, in what appears to be an overture of its own, released at least two US citizens who had been detained in the country for years, The Washington Post reported.
Iran is another option.
If the talks surrounding the Iran nuclear deal (Joint Comprehensive Plan of Action) go well and trade sanctions are uplifted, then Tehran could also increase supplies of heavy crude to the US to compensate for the reduction in oil imports caused by the ban on Moscow.
Russia, on the other hand, could look towards China and India.
The idea is to look for markets in countries that haven't condemned Russia's invasion of Ukraine.
India imports nearly 85 percent of its crude requirements but only about 3 percent of that comes from Russia.
Tatiana Mitrova, a researcher at the Columbia Center on Global Energy Studies, told the New York Times that "there will be a massive orientation of oil and gas flows from European markets, first of all to China."
(With inputs from Washington Post, NYT, AP, and Al Jazeera.)
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