US President Joe Biden announced on Tuesday that the US will prohibit all Russian oil imports, putting more strain on Russia's economy in response to Moscow's invasion of Ukraine.
Biden, on the other hand, recognized that it will cost Americans money, particularly at the gas pump.
"We will not contribute to Putin's war," Biden said, calling the new action a "powerful blow" to Russia's ability to fund the ongoing offensive.
He warned that Americans will see rising prices, saying, "Defending freedom is going to cost."
The move came after Ukrainian President Volodymyr Zelenskyy urged US and Western diplomats to halt Russian imports. Despite heavy limitations on Russia's banking sector, energy exports have preserved a continuous flow of cash streaming into the country.
The announcement was Biden's latest attempt to shut Russia off from much of the global economy and ensure that President Vladimir Putin's invasion of Ukraine is a strategic failure, even if he manages to seize territory, according to the Associated Press. "Ukraine will never be a Putin victory," Biden stated.
Some of the possible repercussions of the United States' ban on Russian oil:
Record Prices
Russia is the world's largest exporter of crude and oil products combined, exporting over 7 million barrels per day, or around 7% of global supply. Such a ban could further give a forward push to already sky-high fuel.
Other western governments have not directly sanctioned Russia's energy sector but some customers including Shell and BP, are already shunning their oil to avoid becoming entangled in legal troubles later.
JP Morgan predicts oil could hit a record USD 185 a barrel by the end of 2022 if disruption to Russian exports lasts that long, although along with most analysts polled by Reuters the bank expects a yearly average price below USD 100.
Inflationary Shock
With natural gas prices reaching all-time highs, the growing cost of energy is likely to propel global inflation past 7%. As a general rule, every 10% increase in the price of oil in euro terms raises euro zone inflation by 0.1 to 0.2 percentage. Brent crude has risen around 80% in euro terms since January 1. In the United States, every USD 10 increase in oil costs raises euro zone inflation by 0.1 to 0.2 percentage points. Brent crude has risen by around 80% in euros since January 1. According to Reuters, every USD 10 increase in oil prices raises inflation by 0.2 percentage points in the United States.
Apart from being a significant source of oil and gas, Russia is also the world's largest exporter of cereals and fertilizers, as well as a key producer of minerals such as palladium, nickel, coal, and steel. The Russian economy's bid cash strip might affect a wide range of businesses and add to global food security concerns.
