How much will Biden’s decision on Russian oil and gas affect Russia? The president of the United States signed an executive order to ban the import of oil, natural gas and coal. The measure includes a ban on new US investment in the Russian energy sector and prohibits US citizens from participating in third-party investments in Russia.
It is a sector that provides 36% of the income of the Russian government. In 2021 it generated 9.1 trillion rubles, 119 billion dollars. The months prior to the invasion produced resources of more than 600 million dollars a day.
The Russian energy sector is huge and the decision to isolate it seems like a lethal blow, right? In practice, Biden’s executive order is anything but a silver bullet. It is much less relevant than last week’s financial-related announcements. The United States buys 672,000 barrels a day of oil and oil products from Russia. This amount is equivalent to 12% of Russia’s exports. You can find a place in other markets, such as China or India.
The closure of the US market will not be enough to strangle “that artery of the Russian economy”, among other things because the partners of the United States in economic sanctions are not ready to join this measure. The European Union offers moral support, but recognizes that it has very limited room for maneuver in the short term, that is to say all of 2022. Britain is more eager to prove that it is the great ally of the United States, but it cannot immediately close the door to Russian energetics. It promises to lower purchases throughout the current year.
The United States produces 10 times more oil than all of Europe and that is why it can be more forceful. In any case, its “forcefulness” has very limited effects in deterring Russia, not least because the number one condition for economic sanctions to work is that they be widespread and sustainable. It won’t. In this context, it is worth comparing with the financial measures decreed last week.
The exclusion of Russian banks from the SWIFT system does suffocate the Russian economy because it is a coordinated offensive by all the partner countries of this system, three quarters of world GDP. It complicates the collection and payment operations related to Russian imports or exports. Something similar happens with the freezing of the funds of the Russian central bank. The Putin government will not be able to dispose of half of the huge foreign exchange reserves, those that are abroad. It is about 320,000 million dollars that are being taken from Putin.
Joe Biden’s decision is important, especially in symbolic terms, because it maintains this serial novel dynamic. Every day, there is an announcement of new sanctions against Russia, of more companies joining Russia’s economic isolation plan. Yesterday, March 8, it was the fast food chain Mc Donald’s, among others.
The US president’s “energetic” message must also be read in the context of the battle he is waging with the Republican opposition. They had criticized the fact that, in the sanctions, the Russian oil and gas sector was left intact. For Biden, it is an opportunity to answer those criticisms, appear as a strong leader in the midst of the conflict and relaunch his energy agenda. Announces that there will be measures to prevent gasoline prices from continuing to rise in the United States and insists on the need to advance in the energy transition, to reduce dependence on fossil fuels and give the United States sovereignty over the countries that produce oil and gas, for example, Saudi Arabia. He proposes to look at the medium and long term.
What effect will Biden’s decision have? Different scenarios will have to be addressed: It can bring Russia closer to China or reinforce Xi Jinping’s role as a key player. He is likely to enable a US “reconciliation” with Iran and Venezuela, by facilitating their return to markets as substitutes for Russia. Perhaps it will allow him to gain ground in his own country and appear more of a leader than before the war. Much of this will depend on what happens in the markets. Will the price of oil drop or will it continue to skyrocket, damaging forecasts for 2022 and beyond?
General Editorial Director of El Economista
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Degree in Economics from the University of Guadalajara. He studied the Master of Journalism in El País, at the Autonomous University of Madrid in 1994, and a specialization in economic journalism at Columbia University in New York. He has been a reporter, business editor and editorial director of the Guadalajara newspaper PÚBLICO, and has worked for the newspapers Siglo 21 and Milenio.
He has specialized in economic journalism and investigative journalism, and has carried out professional stays at Cinco Días in Madrid and San Antonio Express News, in San Antonio, Texas.