President Joe Biden’s ban on Russian oil strikes at the heart of Russian leader Vladimir Putin’s empire.
The embargo, announced Tuesday, represents a direct assault on the most important pillar of Russia’s economy, and a vital source of revenue that Putin has used to strengthen both Russia’s military and his iron-like grip over his domestic politics.
But the move, which Biden’s White House had tried to avoid, comes with big political costs for Biden, too. The ban will almost certainly further increase gasoline prices at a moment when many Americans view runaway inflation as America's biggest problem. Chaos in the energy sector could also imperil another top Biden priority: Dealing with the climate crisis.
“Russian oil will no longer be acceptable in U.S. ports, and the American people will deal another powerful blow to Russia’s war machine,” Biden said Tuesday. “We will not be part of subsidizing Putin’s war.”
Biden framed rising energy prices as a sacrifice Americans must make to support Ukraine’s attempt to thwart Russia’s invasion.
“Defending freedom is going to cost,” Biden said in televised remarks on Tuesday morning. “It’s going to cost us here in the United States as well.”
And now here come those costs
Biden’s White House has resisted banning Russian energy since Russia invaded Ukraine in late February.
But his hand has seemingly been forced by the intense pressure coming from both sides of the aisle in Congress, including from Democratic House Speaker Nancy Pelosi.
Republicans pushed hard for Biden to shut down Russian energy imports—even as they clearly signaled plans to wield the inflation issue as a hefty political sledgehammer to pound Democrats in the midterm elections.
U.S. gasoline prices have surged: The average price for regular gasoline reached a record high of $4.17 per gallon on Tuesday.
Russia supplies only a fraction of U.S. crude oil consumption. But the significance of Biden’s move still comes with seismic geopolitical and market impact, at a time when energy markets were already stretched as tight as a drum.
The U.S. only gets about three percent of its crude oil imports from Russia, according to official statistics. By contrast, Canada shipped the U.S. 61 percent of its crude oil imports from last year, followed by Mexico and Saudi Arabia.
Regardless, the price of oil, which had already skyrocketed above $120 per barrel prior to Biden’s announcement Tuesday, jumped another 7 percent when the news of the U.S. ban broke on Tuesday morning.
Drill, baby, drill
The GOP isn’t just agitating to shut down Russian energy—they want to replace it with U.S. crude.
For Biden, that’s a dicey proposition, because juicing American fossil fuel production would make it harder for him to follow through on promises to combat climate change. Biden has set a goal of slashing U.S. greenhouse gas emissions in half by the year 2030.
Environmentalists say that lowering global emissions of greenhouse gasses, which are causing the atmosphere to warm up by trapping heat from the sun, is a crucial task in the next decade to avert the worst impacts of the climate crisis.
Biden’s White House appears to be trying to prompt other big energy-producing countries to nudge up oil production in the near-term, without making changes at home that would encourage long-term investments in U.S. fossil fuels.
As a result, U.S. officials are reportedly reaching out to Saudi Arabia, and even Venezuela, about bumping up oil supplies in the medium-term to help relieve the pressure in oil markets.
On Tuesday, Biden said the long-term solution should be making new investments in clean energy that “will mean no one has to worry about the price of gas at the pump in the future.”
Doing so, Biden said, would mean that “tyrants like Putin won’t be able to use fossil fuels as weapons against other nations.”
Putin’s new economic nightmare
Russia’s top energy barons have long dismissed the idea that Russian energy could be banned from world markets as a far-off impossibility—because they didn’t think Americans or Europeans would be willing to endure higher energy prices for long.
And when it comes to energy, Russia is simply too big to be ignored. Russia ranks as the world’s third-biggest oil producer, after the U.S. and Saudi Arabia. As of last October, Russian oil and gas exports earned the country almost $500 million every day.
Putin cemented control over Russia in large part by reasserting state control over the country’s vast natural resources.
Putin assumed Russia’s presidency two decades ago at a moment when powerful private businessmen, known as the oligarchs, had seized control of the industrial wealth of the former Soviet Union. But in a key early political battle of the Putin era, Russian officials jailed the once-powerful oil baron Mikhail Khodorkovsky. The assets of his oil company, Yukos, were absorbed by the Russian state-controlled oil giant, Rosneft—under the leadership of Putin’s close ally, Igor Sechin.
And since then, Putin’s control over the country’s energy assets has only expanded—along with his power over Russia, and Russia’s international political clout.
For years, Western governments have balked at sanctioning his country’s most important industry, including after Russia annexed the Ukrainian region of Crimea, and interfered with the U.S. presidential election of 2016.
Yet Putins’ decision to invade Ukraine has now set geopolitical dynamics in motion he can no longer control.
Western energy companies that spent decades working their way into Putin’s good graces to tap Russian energy reserves, including BP, Shell and ExxonMobil, are now fleeing the country in a dramatic exodus that has played out in a matter of days.
And Biden’s announcement on Tuesday signals darker days ahead for Russian energy, at a moment when Putin is relying on petrodollars to save his economy from unprecedented Western sanctions.