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How a sanctions Russian oil imports could affect the US economy

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How a sanctions Russian oil imports could affect the US economy

The embargo on Russian oil imports announced by President Biden on Tuesday could have meaningful consequences for the US economy when inflation is already accelerating, pushing up prices at the gas pump, regardless of how long the effect will last. lasting remains uncertain.

“We are banning all imports of Russian oil and gas and energy,” Mr Biden said, speaking at a White House briefing. He said that the plan will target The “main artery” of the Russian economy. Although he acknowledged that the move was likely to raise gas prices, he blamed Russian aggression for that reality.

The ban applies to imports of Russian oil, liquefied natural gas and coal. It also restricts new US investments in Russia’s energy sector. And it prevents Americans from financing or enabling foreign companies to invest in energy production in Russia.

Europe imports far more of its supplies from Russia than the United States, but energy markets are global, and the mere threat of sanctions has driven commodity prices higher in recent days.

Omair Sharif, founder of Inflation Insights, said: “Things have become so volatile, it’s hard to say how much of this specific ban has led to the rise in oil prices in recent days. higher — so high that the national average gas price could rise to about $4.50 this month, he said, “assuming we don’t go further.”

While the oil and gas embargo is almost certain to drive inflation high in the United States, economists have said the scale of the economic consequences will depend in large part on how it was structured. For example, if Europeans also impose sanctions on Russian oil and gas imports, it could make a big difference both globally and in markets, and it is not yet clear to what extent this will happen.

“Sanctions in many countries will severely reduce and disrupt energy supplies globally and drive up already high commodity prices,” Carolyn Bain, an economist at Capital Economics, wrote in a research note ahead of the announcement. Brent crude, the global oil benchmark, would settle at around $160 a barrel in that case.

The price of Brent crude has jumped nearly 6 percent to about $130 a barrel as of midnight on Tuesday. By comparison, it was around $78 a barrel at the end of 2021.

It’s not yet clear how many countries will adopt similar sanctions: the White House indicated this week that the United States could act differently in blocking imports of Russian oil, noting that countries in Europe are more dependent on Russian energy. are dependent, something Mr Biden also indicated on Tuesday.

“Many of our European allies and partners may not be in a position to join us,” he said, but the allies “remain united in our aim” to inflict pain on Russia’s war effort. This includes efforts by the European Union to reduce dependence on Russian energy.

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Britain indicated on Tuesday that it would take its own steps to ban imports of Russian energy products. The country’s trade and energy secretary, Kwasi Quarteng, said that this will end Russian oil imports and oil products by the end of 2022.

Other European countries are under increasing pressure to follow suit.

“Everything is on the table,” French Foreign Trade Minister Franck Riester told FranceInfo radio station on Monday, adding that France would be concerned about possible sanctions on imports of oil and gas from Russia with “consequences in terms of pressure”. I wanted to see in terms of economic, financial and social impacts on Russia and in Europe.”

French President Emmanuel Macron’s office said Tuesday evening that the country had to coordinate with the EU before taking any further steps, but acknowledged Europe’s need to reduce its dependence on Russia.

“The United States is not dependent on Russian oil and gas, but has European partners,” Mr Macron’s office said in a statement. “We have a long-term policy of getting rid of dependence on Russian oil and gas, but in the immediate future we need to discuss this with our European partners.”

While Italy is heavily dependent on Russian gas, the country’s government has said that if the European Union decides to cut consumption of Russian gas and oil, Italy will not oppose the effort.

The direct US economic impact from the loss of Russian oil is likely to be significant, though less severe than what will happen in Europe. According to the International Energy Agency, the United States imported less than 700,000 barrels of oil per day from Russia in 2021. This represents less than 10 percent of global imports by the United States.

Higher global oil and gas commodity prices and rising prices at the pump will add to the pain of inflation that is already plaguing consumers. Prices are climbing at the fastest pace in 40 years, and this week’s data shows the annual increase in February has exceeded that.

Rising gas prices will exacerbate this trend. According to AAA, the national average price for regular unleaded gas hit a new high Tuesday at $4.17.

“Here in the United States there will be costs as well,” Biden said. “Republicans and Democrats alike understand this.”

Mr Sharif said US inflation could hit a peak of 8.3 per cent in March, given the jump in gas prices. Before the conflict, he had hoped to reduce it to 2.7 percent by the end of the year, but is now expecting a rate closer to 4.5 percent.

Higher gas prices also eat into consumers’ budgets, preventing them from spending on other things – so the ban can have consequences for overall economic growth as well.

But consumers are largely sitting on piles of cash during the pandemic, and because the United States produces gas domestically, higher prices could also encourage companies to invest more in and supply the United States.

Ian Shepherdson, an economist at Pantheon Economics, wrote in a recent note, “It is risky to assume that the Old Testament about higher prices affects overall US economic growth.”

Higher gas prices could be a liability for Democrats during a midterm election year, as they hit voters right in the wallet. Republicans have already seized on gas prices as a negotiating point.

“Under Joe Biden, families are paying for gas more than ever before,” Republican National Committee Chair Ronna McDaniel said in a statement Tuesday.

But the White House is insisting that the price hike is a result of the actions of Russian President Vladimir V. Putin, and Mr. Biden pointed out that the United States and its allies are releasing global petroleum reserves.

The president also seemed ready to shift some of the blame to the companies.

“For the oil and gas companies, and for the finance companies – we understand that Putin’s war against the people of Ukraine is driving up prices, we get that, it’s self-evident,” he said. “There is no excuse for excessive price increases, or padding profits, or any sort of attempt to take advantage of this situation or American consumers,” he said.

Jason Horowitz and Constant Mehut contributed reporting.


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