Oil prices soar as Russian sanctions stir supply chain concerns

03/10/2022 / By Kevin Hughes

The decision of the United States and Britain to stop Russian oil imports is expected to interrupt even further the global energy market with Russia being the second-largest exporter of crude.

Oil prices settled down at four percent higher on Tuesday, March 8, but these have soared to more than 30 percent after Russia invaded Ukraine.

Russian oil and gas exports were already being avoided before the ban as traders sought to stay away from future sanctions.

U.S. President Joe Biden declared a ban on Russian oil and other energy imports while Britain announced that it will take out the import of Russian oil and oil products by the end of the year to give the market and businesses time to search for possible choices. (Related: Biden suspends new oil, gas drilling permits on federal land, signaling beginning of energy price hikes)

“We’re banning all imports of Russian oil and gas energy. That means Russian oil will no longer be acceptable in U.S. ports and the American people will deal another powerful blow to (Russian President Vladimir) Putin’s war machine,” Biden told reporters in a press conference at the White House.

Biden has been working with European allies, who are increasingly dependent on Russian oil, to cut off Russia’s energy-heavy economy and Putin. The president said the moves had been made in close coordination with allies and partners around the world.

US allies not under pressure to ban Russian oil

U.S. allies are not under pressure to ban Russian oil after the sanctions were announced, according to Energy Secretary Jennifer Granholm.

“We don’t rely that much on Russian oil and we don’t rely on Russian gas at all. We know that our allies across the world may not be in that same position. And so we are not asking them to do the same thing,” said Granholm in an interview with CNBC.

“One more source of supply loss. It’s just one more escalation in a series of events that have pushed crude and product prices higher,” said Kepler lead oil analyst Matt Smith.

Prior to the announcement of the ban, Goldman Sachs increased its Brent forecast to $135 from $98 for 2022 and $115 a barrel from $105 for its 2023 outlook, stating that the world economy could face the “largest energy supply shocks ever” considering Russia’s crucial role in the oil market.

According to the Energy Information Administration, the U.S. has imported more than 20.4 million barrels of crude and refined products a month on average from Russia last year, which is about eight percent of U.S. liquid fuel imports. The ban is expected to send the already soaring gasoline prices and inflation sky-high. The U.S. is also importing coal from Russia.

Russia exports seven million to eight million barrels per day of crude and fuel to global markets.

Shell, one of the important oil companies that buy Russian crude, announced Tuesday that it would no longer purchase Russian oil. The disturbance could flow through other energy markets with Russian oil and products being utilized for refining other goods.

“We are at the beginning of that shockwave in energy markets,” said Roger Diwan, S&P Global vice president of financial services.