Statements coming out of London and Washington announcing plans for an American and British boycott of Russian oil are just that. US President Joe Biden, who has been criticized for inflation rates spiking to 40-year highs on his watch, is not about to shoot himself in the foot.
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As evidence of this, one need only take a look at the oil market. Traders know an approaching crisis when they see one. Yet after the boycott was announced, Brent crude oil traded just $3 higher than usual, at $132 a barrel.
The US imports less than 2% of its oil from Russia, and it can easily find alternatives. In fact, this has likely already been taken care of. A US delegation met with Venezuelan officials to discuss energy security Tuesday apparently toward this end.
Moreover, private companies in the US import Russian oil. Biden would need the US Senate's approval for the boycott. Such a lengthy legislative process would serve to buy Moscow more time.
The UK is also reportedly nowhere near implementation of the move.
Unfortunately, the one person who could really rock global markets is Russian President Vladimir Putin, should he decide to exact revenge for the sanctions.
According to Dr. Amir Mor, a lecturer at the Reichman University School of Sustainability and an energy market expert, "It would be enough for Putin to announce he was limiting the supply of oil to international markets and the supply of gas to Europe to send the market down dozens of percentage points in one day, and oil prices would spike to $150 to $200."
Moscow is aware of the power it wields. Europe imports 30% of its oil and 40% of its natural gas from Russia. Limiting supply in the middle of winter would result in disruptions to the electricity supply, the shutting down of factories, and, of course, a sharp spike in prices.
Russia's Deputy Prime Minister Alexander Novak noted that, if Russia were to limit the supply, "The spike in prices would be unexpected – over $300 a barrel, if not more. The volume of Russian oil cannot be quickly replaced in the European market. It would take over a year, and it would be far more expensive for Europeans. In this scenario, they will become the principal victims."
Novak emphasized Moscow would know where to direct its supply should Europe and the US refuse to purchase Russian oil.
"If you want to refuse energy supplies from Russia, please, we are prepared for this. We understand where we can direct this supply. The question must be asked: Who gains from this? Why is it necessary?" he asked.
For the time being, the Russians do not appear poised to act as the US plays a minor role in Russia's export market, and Europe cannot afford to join the boycott of Russian oil and gas for obvious reasons. Threats from both sides, then, are akin to shots fired in the air.
At the same time, economic sanctions are proving to be more and more effective with each passing day: Sanctions on Russian banks prevent traders from purchasing some of the Russian oil. Over the last three days, dozens of oil tankers have been begging for buyers. The Russian companies are willing to shave a few dollars off the price but have had no buyers since no one can pay. In practice, there is already a shortage, which has led to oil going for $130 a barrel.
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