The U.S. has recently added more sanctions to the ones previously imposed on Russia due to the Ukraine invasion, banning U.S. oil and natural gas imports from the country. The U.K. has also announced that it will completely end its oil and gas purchases from Russia by the end of 2022. So what kind of repercussions will this decision have?
WHAT IS THE STATUS OF US-RUSSIA OIL TRADE?
Last Tuesday, U.S. President Biden said, "We're banning all imports of Russian oil and gas and energy. That means Russian oil will no longer be acceptable at U.S. ports," effectively blocking Russian oil from entering U.S. markets. According to the latest data, Russia's share in the U.S.'s total imports of oil and petroleum products stands at around 9%.
Meanwhile, U.S .oil imports account for only 1.3% of Russia's total exports. The same goes for the U.K’s meager (1.5%) share of Russian oil exports. In other words, the decision taken by Washington and London will translate into a meager decrease of 2.8% in Russia's total exports. In this respect, the damage this decision will have on the Russian economy may not seem quantitatively important. Its ramifications are, however, symbolic.
CAN VENEZUELA AND IRAN BE ALTERNATIVE SOURCES FOR OIL?
So, where will the U.S. turn to for oil now that it has given up on buying it from Russia? In this regard, the visit by a U.S. delegation to Venezuela immediately afterwards seems to imply it will be Venezuela.
However, sources state that Venezuela is not the only option, and that Iran is also on the table. Of course, technically, both countries are an important alternative thanks to their large oil reserves. Yet, the embargoes applied to both countries are still in place. However, one country that the U.S. does imports the most oil from is its neighbor Canada. With proven oil reserves of 168.1 billion barrels, Canada ranks third among the countries with the biggest reserves in the world. The transition period can be managed by increasing the amount of oil supplied from here. In other words, I can predict that the U.S. will not be too hasty regarding lifting the Venezuela and Iran embargoes.
WHERE ARE PRICES HEADED?
Now that the U.S. and the U.K imposed oil embargoes on Russia, all eyes have now turned to the issue of oil prices.
Although the embargo decision contributed to increasing oil prices, the warm messages from Ukraine and the foreign ministers of the two countries that met at the Antalya Diplomatic Summit, in addition to the call of OPEC member United Arab Emirates to increase oil supply, caused the prices to go down somewhat.
These developments caused the oil price to decrease to $110 per barrel. However, after the first meeting of the foreign ministers of Ukraine and Russia, the desired messages did not emerge, and we saw that the prices began to tick upwards again.
In a nutshell, one wouldn’t be remiss to say that oil prices are set to continue to increase for a while, taking into account the psychological ramifications stemming from the realization that the Ukraine-Russia war will not end in the short term. Moreover, even if the war is over, supply-demand developments mean that the oil price will hover above $100 per barrel for quite some time.