(OP)inions US bans Russian oil

March 9, 2022 

President Biden today announced the banning of all US imports of Russian oil and tight energy markets are now fracturing, raising the prospect of not just high prices but actual cutoffs.  

In response to the invasion, the U.S., the European Union and other allies are waging a surprisingly cohesive and aggressive form of financial warfare. Russia‘s access to capital along with numerous goods and services has been severely curtailed both by official sanctions and by foreign firms’ self-sanctioning. 

That includes Russias economic lifeblood: energy exports. Millions of barrels of heavily discounted Russian oil cannot find buyers. And Western oil majors including BP Plc and (gasp) Exxon Mobil Corp. are walking away from multi-billion-dollar investments in the country. The dislocation and sheer discombobulation are evident, with Brent crude oil topping $135 a barrel at one point this weekend even as the discount on Urals crude blew out. 

The nearest comparison is the embargo placed on oil from Iraq and occupied Kuwait in 1990, which led gasoline prices to almost double within a couple of weeks. Yet that episode was relatively brief and happened at a time when oil inventories were high and Saudi Arabia was ready to make up for shortfalls. Russia is a bigger exporter of both oil and gas (as well as metals, coal and grain). And Saudi Arabia and the rest of OPEC+now seem to prefer risking global economic turmoil to crossing their partner in Moscow.  

OnePro Special Analyst

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