Why does Yellen fear the EU embargo on Russian oil for the US?
US Treasury Secretary Janet Yellen says Europe needs to be careful with a freeze on energy imports from Russia, otherwise oil prices will rise even more. All the details
Last week, US Treasury Secretary Janet Yellen called on the European Union to be cautious about imposing a complete freeze on energy imports from Russia following the invasion of Ukraine. The move would have a tremendous impact on the Kremlin's finances, whose revenues come mainly from the sale of hydrocarbons abroad, but an equally important backlash on the European economy, which depends on Russian fossil fuels. Russian natural gas is worth approximately 40 per cent of the total imported from the Union; oil about 30 per cent; coal about 50 percent.
"In the medium term," said Yellen, "Europe clearly needs to reduce its dependence on Russia for energy, but we must be cautious when thinking of a complete European blockade on oil imports."
WHAT THE UNITED STATES, UNITED KINGDOM AND EUROPEAN UNION DO ABOUT RUSSIAN ENERGY
On March 8, US President Joe Biden signed an executive order to ban the import of Russian oil, liquefied gas and coal into the United States, with the aim of damaging Vladimir Putin's regime.
On the same day, the United Kingdom also announced a gradual ban on imports of Russian crude oil and petroleum products: purchases will be eliminated by the end of 2022.
The European Union, on the other hand, had presented a plan to become independent of Russian fossil fuels in the near future, by 2030. More recently, however, in the wake of the images of the massacre of civilians in Bucha, the blockade has decided to suspend imports. coal from Russia, from mid-August. And it is evaluating the possibility of extending the ban also to oil and natural gas (but it is more complicated, in the latter case, due to the impossibility of immediately replacing the huge volumes imported).
THE WORDS OF YELLEN
According to Yellen, an immediate block on Russian oil imports by the European Union "would clearly raise global oil prices" and "would have a harmful impact on Europe and other parts of the world". The secretary added that, "counterintuitively", a total embargo on Russian crude might not do too great a damage to Moscow's finances, because the country could benefit from higher prices (even if its crude, the Urals, of it usually sells at a lower price than Brent, the international benchmark ).
According to Yellen, the West should rather work to try to reduce the "proceeds from the sale of oil and gas" for Russia. "If we could find a way to do this without harming the entire globe through rising energy prices, it would be ideal."
THE SITUATION IN THE UNITED STATES
US officials – as the Financial Times writes – have repeated several times that they do not want to push Europe to follow them in imposing a ban on energy imports from Russia, but rather that they want to help the continent become autonomous from Moscow over time, for example by importing more American liquefied gas .
The stop to imports of Russian oil, gas and coal does not threaten the energy security of the United States because it was already purchasing very little, if any, volumes from Moscow. Regardless of this, however, Washington too would be damaged by the European embargo because the oil market is global, and the expulsion of Russia – which exports 7 million barrels a day – would limit the international availability of crude oil, and no single manufacturer is able to cover the gap in the immediate future.
Less oil supply means higher prices everywhere. In America, the inflation rate and fuel prices at service stations are already at high levels. The cost of gasoline – a pre -war problem in Ukraine – is a major concern of citizens who will vote in mid-term elections in November, and the Democratic Party does not want to lose control of Congress, otherwise President Biden's agenda it would be blocked by the Republicans.
This is why Biden announced the largest ever release of crude oil from the US strategic reserve in late March, as well as urging national oil companies to increase production. The risk for the global economy is a stagflation, that is a combination of high inflation (due to the rise in the price of raw materials and transport) and stagnation (due to low growth and high unemployment).
Oil prices are currently experiencing a downward phase – on Monday they lost 4 percent: Brent is at around $ 102 a barrel and US WTI at 98.5 – due to fears about the economic slowdown in China , the largest importer. , whose tough “zero COVID” policy limits industrial activity.
TABARELLI'S ANALYSIS
In Il Sole 24 Ore Davide Tabarelli, professor of economics at the University of Bologna and president of the energy research company Nomisma Energia, wrote precisely that "oil has a global market that sees the United States among the main protagonists, whose domestic prices are originating from international barrel prices, those that are already affected by a possible drop in Russian production. Brent is around $ 105 per barrel (bbl), against last year's average of $ 70 ”.
The economist then points out two things. The first is that a "sort of oil embargo is in part already in place as few have continued to buy crude from Russia in recent months for fear of payment problems following financial sanctions." Just recently the Russian state oil company Rosneft failed to sell the millions of barrels of Urals crude offered due to the reticence of European buyers.
The second is that, due to sanctions and the lower demand for its crude oil, "Russian production has already dropped by 0.3 Mbg [million barrels per day, ed ] to 10 Mbg in March, but in April and May it should drop further. If it applies the sanctions then the EU will have to look elsewhere for the same volumes, but 3 Mbg will be very difficult to find, because there is not a lot of unused production capacity and what little there is, about 3 Mbg, is all concentrated. in the Middle East, in particular in Saudi Arabia ". However, it does not seem to have any intention of increasing output also due to political conflicts with the Biden administration.
Tabarelli concludes his analysis by noting how “gasoline prices in many US cities have for weeks exceeded well over $ 4 / gallon (€ 1 per liter), a threshold beyond which voters are beginning not to vote for the incumbent president. For this reason, the embargo on Russian oil by the EU is a very serious issue for Washington as well, which is now calling for greater caution and to take time ”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/embargo-petrolio-russia-conseguenze-stati-uniti/ on Tue, 26 Apr 2022 09:54:26 +0000.