The unprovoked Russian invasion of the sovereign nation of Ukraine has been met with unprecedented global condemnation, but as the conflict continues, so does the negative impact on global energy markets and U.S. consumer pocket books.
The current national average price of gas has soared to $4.25 a gallon, according to AAA, up significantly from $2.66 a year ago. That number now stands to climb even higher, especially as the summer months approach, which will put more people on the road.
Russia exports 5 million barrels of crude oil a day, representing around 12% of global trade, making it the world’s largest exporter. It’s the world’s third-largest oil producer. A global energy powerhouse.
However, around 60% of Russia’s oil exports go to Europe and another 20% to China. Russia represents only 5% of U.S. crude imports, according to the U.S. Energy Information Administration.
On Tuesday, President Joe Biden announced that the U.S. would ban imports of Russian oil, natural gas, and coal. The United Kingdom has said it will stop Russian oil imports as well. European countries including Germany and the Netherlands have no immediate intentions of immediately shutting off oil pipelines, though the European Union announced on Tuesday that it would cut gas imports from Russia by two-thirds this year.
These measures prompted a spike in oil prices, which had already been steadily increasing. Oil stands at $125 per barrel and some analysts have warned that worst-case scenario oil prices could hit $200, while Russia has said that $300 oil prices are possible, depending on what Europe decides to do, and the situation is sure to have ripple effects across the global economy. In the U.S. where inflation rates are already at 40-year highs, “a sharp spike in oil prices may portend a recession,” said Vivekanand Jayakumar, associate professor of economics at the University of Tampa, in an oped published by The Hill recently.
Many energy experts, as well as U.S. politicians, state that the U.S. and other western nations can only blame themselves for Russia’s rise as an energy behemoth.
Jeremy Martin, who serves as Vice President of Energy & Sustainability for the Institute of the Americans Energy & Sustainability Program, stated to The Floridian that dependency on Russian oil has increased gas prices and emboldened the Russian regime. “Long before the buildup by Russia and now their naked aggression and invasion of Ukraine, global energy markets have been roiled. This was particularly acute in Europe.”
He underscored that America and Europe needed to recognize the West’s role in allowing Russia to become a dominant player in the energy industry. “Despite geopolitical tensions derived from dependency on Russian energy, the EU did not make enough progress to diversify its sources. The US and EU together are more aggressively pursuing LNG imports into the continent and important progress has been made. But, with these developments, it shows that not enough and not fast enough.”
U.S. legislators, particularly Republicans, are making a call for expanding U.S. oil and gas production as a security concern.“You can’t win an energy war if you shutdown your own energy sector,” said Rep. Mark Green to Fox News Channel In a recent interview.
“Energy prices were already high, largely because President Biden moved to restrict domestic production on his first day in office. We now produce 1.2 million less barrels of oil per day. Not only does that drive energy costs higher for Americans, but it leaves us more reliant on foreign producers like Russia. Americans are already starting to pay for that. We need to jumpstart domestic production and cut off our dependence on Russia,” stated Sen. Rubio in response to The Floridian’s request for comment.
Inasmuch as U.S. energy security should be a priority, “U.S. shale producers are unlikely to replace banned Russian oil imports due to a shortage of oilfield materials, equipment and labor and a dwindling backlog of wells waiting to be completed,” Reuters reported on Wednesday.
“They can’t find people, and can’t find equipment,” said Robert McNally, president of consulting firm Rapidan Energy Group. “It’s not like they’re available at a premium price. They’re just not available.”
As a result, U.S. oil production is just under 12 million barrels a day, 8% lower than in 2019.The U.S. does not have any spare oil sitting around and analysts have warned that it will take at least 6-8 months to bring new production online.
Experts agree that a tight oil market with skyrocketing oil prices will only enrich Russia, as every barrel will find a home. Thus, the only way to bring down global oil prices and decrease Putin’s profits from Russian oil is to flood the market with oil by bringing every available barrel online immediately.
To stabilize global markets as quickly as possible, the Biden Administration is seeking to replace Russian oil with supplies from countries that are available in the short term: countries like Saudi Arabia, where oil production is on par with Russia, as well as Venezuela and Iran.
A high-level U.S. government delegation made a surprise visit to Venezuela over the weekend to, according to statements by the White House on Monday, discuss “energy security” and explore the possibility of relaxing sanctions on Venezuelan crude oil to replace Russian oil.
American refiners had been increasing their purchases of Russian oil in order to replace Venezuelan supplies, banned since the Trump administration levied sanctions on the Maduro regime in late 2018.
Now that President Biden has announced a ban on imports of Russian oil, “the United States should reevaluate sanctions against Venezuela, double down on targeted sanctions against individuals and reverse broader sanctions that hurt our national interests and the interests of the Venezuelan people, and aid Russia’s energy dominance,” said Brian Fonseca and Eduardo Gamarra in an oped published this week by The Miami Herald.
“To date these sanctions have achieved neither a change of regime nor a modification of Maduro’s behavior that, beyond extreme corruption, includes well documented and widespread human rights violations. Meanwhile, Venezuelans face the worst humanitarian crisis ever experienced in the Western Hemisphere,” they added.
Not everyone agrees. Representative Mario Diaz-Balart (FL-R), said in an oped published Wednesday in The Floridian, “buying blood oil from Russia, Iran, and Venezuela is reckless, irresponsible, and outright dangerous for U.S. national security. The Biden Administration must not appease ruthless dictators hoping that the next one might be slightly less reprehensible than the other.”
