The West moves to tighten the taps
Putin’s war machine relies on energy exports. Can we survive without them? Emily Hohler reports
On Tuesday, US president Joe Biden banned imports of Russian oil and gas, a move that was matched by a UK announcement to phase out Russian oil imports this year, says James Politi in the Financial Times. The EU “did not follow suit”, instead saying that it would cut gas imports by two-thirds within a year. Russia is the world’s largest exporter of crude and oil products, and shipped almost eight million barrels daily at the end of last year. The UK and the US are less dependent on Russia than much of the EU. Around 60% of Russia’s oil goes to Europe including around 2% to the UK; 8% goes to the US. Brent crude rose 6.5% to $131 a barrel in response to the news. Alexander Novak, Russia’s deputy prime minister, warned it could go to $300 and said Russia had the option of shutting off gas supplies to Europe. Other “counter-sanctions and export restrictions” could follow, says Allister Heath in The Daily Telegraph. Even without the embargo, Europe and the UK faced an “energy shock”; cutting off Russian energy, fertilisers or precious metals could “wreak devastation”. As in the 1970s, we have “been caught out”, this time by our “idiotic” domestic energy strategy, or lack of one (see page 14).
Driven by fear
“It should be possible to shun Russian oil while avoiding the most extreme scenarios,” says The Times. So far, the price surge is being driven by fear rather than actual shortages. Member countries of the International Energy Agency (IEA) have agreed to release 60 million barrels of emergency reserves and signalled they could do more. Meanwhile, the Biden administration has been “scouring” the globe for extra barrels, says Derek Brower in the Financial Times. It is “encouraging domestic producers to step up drilling” (though US refineries were built to process heavier crudes and would take 12-18 months to come online), lobbying oil cartel Opec, and “pushing potential deals to unfreeze Iranian and Venezuelan crude that were placed under sanctions”.
In reality, Saudi and the UAE are the only producers that can swiftly supply millions of barrels and calm the market, says Dion Nissenbaum in The Wall Street Journal. So far, they have refused to do so and declined to even speak with Biden, saying they are “sticking to a production plan” approved by Opec and a group of other producers led by Russia – an alliance that has “enhanced” Opec’s power while bringing them “closer to Moscow”. The Saudis are critical of US policy in the Gulf and want more support for their intervention in Yemen’s civil war, as do the Emiratis. They also want help with their civilian nuclear programme as Iran’s moves ahead.
Still, half-measures against Russia are not an option, says Ambrose Evans-Pritchard in The Daily Telegraph. “Calibrated sanctions” against Benito Mussolini after his invasion of Ethiopia in 1935 “enraged” but did not stop him. But a blockade of crude alongside other sanctions will make it “impossible” for Vladimir Putin to wage a serious offensive for more than a few weeks (and even without formal European sanctions, 70% of Russian oil is “struggling to find a buyer” as companies fear “falling foul of further sanctions or incurring reputational damage”, notes The Times’ Emily Gosden). Additionally, European gas storage is now “back within its historical range”. Every IEA state is obliged to keep a petroleum reserve of at least 90 days. Nor can China rapidly step in to buy Russian oil: its refineries aren’t adapted to heavy crude and it lacks the necessary transport network. Much now depends on which side Gulf petro-states decide to take. This crisis is forcing them to choose.