Oil prices climb on news Russian energy imports will be banned

While the U.S. and other Western countries have already imposed sanctions on Moscow, there were energy carve-outs included to insulate the global economy and stave off even more rampant inflation. Russian imports make up about 8% of total U.S. oil imports, with the country importing about 672,000 barrels per day of oil and refined products from Russia last year.

There has already been some self-sanctioning of Russian energy in the U.S. as the market shies away from Russian products.

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“The de facto ban on Russian crude oil imports is here with or without government legislation,” said Andrew Lipow, president of Lipow Oil Associates.

The surging oil prices pushed the average cost for a gallon of gas in the U.S. to an all-time high on Tuesday. The national average price for a gallon of gasoline now sits at $4.17 — a massive 10-cent increase from just the day before.

Chris Haynes, an associate professor of political science and national security at the University of New Haven, told the Washington Examiner that he wasn’t all too surprised about the administration’s reported plans to cut off the country from Russian oil imports because of the immense pressure it has been under to act.

“I think it might be symbolically a good move by the Biden administration that the United States is again willing to do this sort of thing and take the leadership role, because it hasn’t always been clear,” Haynes said during a Tuesday morning interview.

Haynes said what isn’t as certain is whether other countries in Europe will make similar moves given so many of them are dependent on Russian energy outflows. For example, a whopping 30% of Germany’s oil imports come from Russia. If Germany were to cut off the flow of Russian oil, it could spike prices at a massive scale.

Whether or not European countries will try to restrict oil imports depends largely on whether there are other oil sources that can open up and overproduce to meet the shortfall, Haynes said, although he suspects in the short term, that probably won’t be the case. He said the most likely European country to push back on Russian oil would be Poland, which has been at the forefront of opposing Moscow’s aggression in Ukraine.

The news about banning Russian oil imports follows other sanctions that had previously avoided Moscow’s energy sector.

The U.S. targeted and froze a big chunk of the more than $600 billion currency reserve that Russian President Vladimir Putin built up as a cushion in case of sanctions, something that experts say is a powerful move.

Western powers also announced that certain Russian financial institutions would be cut off from the SWIFT system. The Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT, is the main secure messaging system that facilitates cross-border financial transactions and money transfers.

The value of the ruble, Russia’s currency, has plummeted since the U.S. and allies imposed sanctions. The ruble is now worth far less than a penny and was trading at about 133 against the dollar on Tuesday.

The goal of the West is to squeeze the Russian economy so thoroughly that Putin faces an existential threat from not only his top brass, oligarchs, and government officials, but also from the people of Russia, thousands of whom have already been arrested for demonstrating against the war in Ukraine.

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But how high could oil and gas prices go?

With the United States’s planned unilateral move to ban Russian energy exports, gas prices are unlikely to leap to $5 per gallon, said Haynes, although he added that if Putin pursues a “nuclear option” and shuts off oil to Europe at large, it “could get really messy” and the U.S. could see prices pushing beyond $5 very shortly, although he doesn’t think that is likely to occur.