Keys | The implications of the US and UK veto on Russian oil | International
It was an open secret for days, but the White House finished taking the step on Tuesday. A week and a half after leaving energy out of its initial package of sanctions on Moscow, the United States will stop importing Russian oil and gas in retaliation for the invasion of Ukraine. And it will not be the only one: hours later, the United Kingdom joined the motion —albeit more gradually—, adding an additional degree of pressure on the Russian economy, highly dependent on fossil fuel exports. These are the main keys and repercussions of the measure:
How much oil do the US and the UK import from Russia?
Its weight in the US energy matrix is minimal: less than 8% of the crude that the world's leading power buys abroad comes from the Eurasian country, a very similar figure —although slightly higher— in the British case. Although there may be occasional tensions in the short term, in a market as active and global as the oil market, it will not be difficult to replace that production with supply from third countries. Yes, at very high prices.
How can the Russian offer be replaced?
Given the very low weight of Russian crude over the total consumed in the US and the UK, it will not be difficult to find a replacement for it. If other countries make the same determination, however, it would be much more difficult to find supply alternatives.
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There are, however, several factors that will alleviate the situation. First and foremost, the pumping power of the mighty industry fracking US, which has raised it to the top of world oil and that next year its production will shoot up to a new historical maximum of 13 million barrels per day, according to the United States Energy Information Administration (EIA). The second is the return of Iran to the market, which will culminate when it seals its new nuclear agreement and which will help mitigate the consequences with an injection of one million barrels per day. It is almost a seventh of what Russia produces.
The third and most unexpected is Venezuela: aware that -although it has fallen behind as a producer and with obsolete infrastructures- the Latin American country has the largest proven deposits of crude oil under the ground, the US government sent last weekend a high-level delegation to Caracas to discuss “energy security” issues. In silver: lift sanctions to ensure an additional dose of supply that nobody had.
The announcement by the International Energy Agency (IEA, dependent on the OECD) that its member states —including the US itself— will continue to release strategic reserves in the coming days is also part of this strategy to replace Russian oil. . The objective: to relax the pressure on prices and reduce market volatility.
Will the EU follow in their footsteps?
It is an impossible question to answer at the moment, given the variety of sensitivities among the main Member States. On the one hand, Germany - one of the countries most dependent on Russia - flatly refuses to give up Russian fuels, alluding to the capital importance for the supply of its industry and its homes. On the other hand, France and the Netherlands —which do not matter so much to the Eurasian giant— are open to any possibility and do not rule out any scenario. Italy and Spain, for their part, still do not express a clear point of view.
That the United Kingdom has followed, in record time, in the wake of the United States, puts more pressure on the bloc. The only clear thing, yes, is that the decision will be common and not individual. In any case, the logical thing would be to think that, if the step is taken, the measure will be limited to crude oil and not gas, which is much more difficult —and costly— to replace in the very short term.
Why doesn't Europe have it so easy?
Again, due to a dependency issue: Russia is a minor supplier for the US and the UK, but for the EU it is much more significant. More than a quarter of the community bloc's oil imports come from that country. Also, banning them without making a similar determination on gas would make for strange reading. And taking the step with gas is far from that simple: the economic implications of such a measure would be enormous. However, more and more European oil companies have chosen not to buy another barrel of crude oil until further notice. The last to do so has been the largest in the eurozone by assets, the French Total.
What consequences will it have for Russia?
If the veto remains in the US and the UK, they will be modest. However, if the EU, which buys 60% of its crude oil production and an even greater amount of gas, decides to cut ties with its neighbor to the East, the impact would be enormous. At current prices, the sale of fossil fuels to European partners reports more than 1,000 million euros a day to Russia, according to data from Simone Tagliapietra, researcher of the Bruegel study center. That money is essential to sustaining his military campaign in Ukraine, at a time when about half of his central bank's reserves are locked up by the West, and its evaporation would exacerbate his weak financial position.
Even if the EU were to take the plunge, Moscow has an additional asset: China, an economic colossus that needs huge amounts of oil on a daily basis, has given no indication that it will give up its oil. Today it buys about a fifth of what it sells abroad, but there is little doubt that Beijing will seize the opportunity to grab more power at bargain prices. That occasion extends, according to Bloomberg, to a possible taking of positions in the shareholding of large energy companies or Russian firms in the raw materials sector. A balance investment, but loaded with risk: nobody knows how Russia will come out of the Ukrainian saga.
Why is oil going up?
Fundamentally, because it implies a narrowing of the market: less supply is always synonymous with higher prices. Russia is one of the largest oil powers in the world: it is the second largest exporter of crude oil on the planet, after Saudi Arabia. And the largest if its derivatives are also added, covering by itself about 7% of global demand. This Tuesday, after the announcement of the measure, the barrel of crude brentthe benchmark in Europe, rose sharply to over $125 a barrel, its highest level in 14 years.
This increase will not only have consequences for the US and the UK, but for the whole world: more expensive oil also means more expensive gasoline and diesel at Spanish service stations and the rest of the world, and lower disposable income of households to consume other products and services.
How far can prices go?
It largely depends on how long the situation lasts and how many countries end up supporting the US measure. If Washington's veto is extended until the end of the year, investment bank JP Morgan believes the brent it can shoot up to $185, which would be up 40% from current levels and shatter any previous record. In this scenario, the Swiss entity UBS sets the bar a little lower: at 150 dollars.
If the European Union joined the measure, the escalation would be exponential: just over half of Russian production would disappear from the world market, and the Norwegian consulting firm Rystad Energy anticipates that crude oil could reach 200 dollars. The consequences on inflation, already triggered, would be disastrous.
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