Not every country agrees with the economic sanctions imposed by the Western powers.
Forget US$100 crude oil. We have passed that. Crude oil has already hit US$130 a barrel. Chances are the commodity will stay above 100 bucks as long as the Russia-Ukraine war does not de-escalate. And it appears the worst is yet to come. When will the Western powers realize that sanctions will not work on an authoritarian country, let alone a military superpower like Russia?
If sanctions work, dictators in Venezuela, Cuba, North Korea and Iran would have been jobless ages ago. If it works, the US would not have to resort to military invasions to neutralize Iraqi Saddam Hussein or Libyan Muammar Gaddafi. If sanctions work, the US would have transformed Russia into a democratic country already. If it works, Putin would not have had invaded Ukraine.
For months before Vladimir Putin’s special military operation, Joe Biden had been warning like a broken record that Russia will be hit with economic sanctions that “exceed anything the world has ever seen”. Yet, Russia still decided to invade Ukraine. It means Moscow was well prepared to face the economic sanctions. But is the United States and the world prepared for the consequences?
We are not talking about the world’s first Nuclear War, which Putin has threatened to unleash if the US and NATO dare to send troops to interfere in the war. We are talking about oil alone. While the economic sanctions may have damaged the Russian economy, it fails to destroy it. The damage could be temporary as Russia still has two powerful weapons – China and crude oil.
After unleashing the sanctions, President Biden is caught between fighting inflation and pressure to ban Russian oil, which is being exempted from the sanctions. The fact that the US has selectively allowed Moscow to sell its oil is a huge loophole. If Putin is prolonging the war to create a refugee crisis, as well as to profit from the skyrocketing oil prices, it certainly works like a charm.
Even before the war started, Russia pockets more than US$500 million – every day – from selling its energy resources. Oil money accounts for about half of its exports, which translates to half of Russia’s revenues. Clearly, oil is the silver bullet. But not only China is a happy buyer of heavily discounted Russian oil, Biden has refused to impose an embargo on Russian oil and gas.
Energy sanctions, demanded by Ukrainian President Volodymyr Zelensky, would have immediate consequences at home. With supply chains already stretched thin, any attempt to cut off the flow of energy from Russia would push up the price of gas, hitting the wallet of every American. Now, even without an embargo on Russian oil, Americans are facing economic hardship.
Thanks to speculation, hoarding and panic, the oil prices which hit US$130 a barrel saw gasoline at pump stations across the US reaching US$4.25 a gallon – up from US$3.40 a gallon before the Ukraine invasion. The previous all-time high was set back in 2008 at US$4.103 per gallon, just ahead of the US Great Recession and during the time when oil hit US$150 a barrel.
“Americans have never seen gasoline prices this high, nor have seen the pace of increases so fast and furious.” – said Patrick De Haan, head of petroleum analysis at GasBuddy. The economic hardship may not affect wealthy individuals like politicians or President Biden, but it will certainly hit average American consumers, who are already struggling with the highest inflation in 40 years.
Yardeni Research said the Russia-Ukraine conflict could add up to US$2,000 in annual cost to the American household budget due to surging gasoline or petrol prices. On top of that, people have to pay US$1,000 in extra costs at the grocery store due to inflation. Meaning the typical household in the US will have US$3,000 less to spend this year.
In truth, Americans financial health isn’t spectacular. According to credit card company Capital One, one in four (25%) Americans was unable to pay at least one bill in the last month, while 62% said they were forced to cut back on spending such as shopping, dining out or entertainment. Are they willing to accept more economic hardship just to punish Putin?
It’s easy for US lawmakers to say they are ready to sacrifice in support of Ukraine because they have no problem putting food on the table. Even if every single American is ready, the global markets are not. Not every country agrees with the economic sanctions imposed by the Western powers. Even Germany disagrees with the idea to ban Russian oil in order to bring Putin down to his knees.
While German Chancellor Olaf Scholz had frozen the Nord Stream 2 project after the invasion, largely due to pressure from the US, Europe’s biggest economy has made it clear that it would not make any further energy sacrifices and would keep buying from Russia. The energy needed by Europe for heat generation, power supply and industry cannot be sourced elsewhere.
It’s easier for the US to boycott because Russian oil makes up 7% of U.S. imports, but about 30% of Germany’s imports come from Russia. And in the event Germany is willing to sacrifice, which it is not, Russia can easily diversify into the Chinese markets with heavy discounts. Putin knew the EU has no alternatives to Russian energy supplies, at least not overnight.
Russia is the world’s third-largest oil producer, providing 10% of global supply last year. In 2018, the US became the world’s largest crude oil producer, surpassing Russia and Saudi Arabia, due to “fracking boom”. Despite being the top producer, the US still imports Russian crude to service more-isolated coastal markets and to keep refineries running at optimal levels.
Now, while the Biden administration is discussing the prospects of tightening the screw on Russian economy with a ban on its oil, Moscow has threatened to retaliate by shutting down the gas flow to Europe through Nord Stream 1. It’s a pre-emptive strike against the US and NATO. Russian Deputy Prime Minister Alexander Novak said if the gas pipeline is closed, oil prices could shoot to US$300 per barrel.
After the oil prices soared to 14-year highs on Monday, Novak issued a challenge – “European politicians need to honestly warn their citizens and consumers what to expect. If you want to reject energy supplies from Russia, go ahead. We are ready for it. We know where we could redirect the volumes to”. Russia’s latest warning came as the US scrambles for help from other dictators.
To offset Russian oil, Biden administration is considering easing restrictions on imports of oil from Venezuela. The president also plans to suck up and befriend Saudi Arabia again. Besides Venezuela and Saudi, the White House also hopes to bring Iranian oil to the market. Biden hopes the strategy could checkmate Putin as well as isolate the Russian allies.
But it was only last year that President Joe Biden arrogantly said he was in “no rush” to lift US sanctions on Venezuela. Both the Trump and Biden administrations have made clear the US will continue to recognize opposition leader Juan Guaido as Venezuela’s interim president. Authoritarian President Nicolas Maduro was accused by the US of election fraud in 2019.
Likewise, it screams hypocrisy of the highest order after Biden reportedly was planning a visit to Saudi to discuss global oil supply. Within the US, critics have accused Biden of turning a blind eye to Saudi’s war crimes in Yemen. Biden had also promised during his presidential election campaign to punish Saudi for the 2018 brutal murder of Jamal Khashoggi, a Washington Post journalist.
Marco Rubio, a Republican on the Senate intelligence committee, said – “America can easily replace Russian oil by producing more of its own. Instead, Biden’s plan is to beg Saudi Arabia to produce more, buy more from a terrorist like Maduro in Venezuela, and cut a deal with Iran, the world’s leading state sponsor of terrorism”.
The US and Biden’s U-turn, embracing the Saudi after the extremely cruel and brutal assassination of Jamal Khashoggi, is definitely jaw-dropping. The CIA has concluded that the Saudi Crown Prince Mohammed bin Salman had given the order for the killing, where the Saudi Arabian dissident was butchered and his body was dismembered and disposed of.
It’s both laughable and flabbergasting that the US moral compass can change so easily and quickly. It was only in 2020 that Joe Biden called Saudi a “pariah”. Now that the half-baked economic sanctions fail to defeat Putin, the US president is rushing to the same pariah kingdom for help. However, Saudi has so far decided to side with Russia.
Why should Saudi help Biden when the kingdom is benefiting from the current high oil prices? Besides, the US and Saudi Arabia have become a rival oil exporter since America developed new methods of extracting oil and gas from shale deposits known as fracking. Even before the invasion, Biden made a rare phone call to King Salman in early February, begging for more oil, only to be ignored.
Russian’s warning that crude oil could hit US$300 may sound ridiculous. However, more than 1,200 contracts were traded on Monday for Brent crude future at US$200 a barrel for May delivery. Analysts at Bank of America said if Russia’s oil exports were cut off, there could be a 7 million barrel per day or larger shortfall, pushing prices as high as US$200.
Global oil prices have spiked more than 60% since the start of 2022, along with other commodities, raising concerns about world economic growth and stagflation. So, it doesn’t matter whether it will hit US$200 or US$300. Either price will definitely trigger global economic disaster. There’s just no way to fully replace Russian’s massive oil production. – Finance Twitter