US, UK ban Russian oil as EU eyes bonds

Mar 09, 2022

BLOOMBERG, REUTERS [WASHINGTON] The US and the UK banned the import of Russian oil while the European Union is considering issuing joint bonds to help counter the fallout from President Vladimir Putin's invasion of Ukraine.

President Joe Biden announced measures against Russian oil, LNG and coal on Tuesday while the UK plans to phase in the restrictions over several months.

Biden's announcement is a major escalation of Western efforts to hobble Russia's economy that will further strain global crude markets.

"The United States is targeting the main artery of Russia's economy," Biden said Tuesday at the White House. "We will not be part of subsidising Putin's war."

The US move will be matched in part by the UK, which announced a ban on Russian oil imports on Tuesday, though it will continue to allow natural gas and coal from the country.

Other European nations that rely more heavily on Russian fuels will not participate.

The scope of Biden's action was not immediately clear, including exceptions and the impact on shipments already in transit.

Biden's move is a significant step in his sanctions campaign against Russia after its invasion of Ukraine. While so-called self-sanctioning by the oil industry has limited some purchases of Russian barrels, an outright US ban would further weigh on the market and increase volatility.

Biden was already grappling with political fallout from surging gasoline prices even before the invasion. At an average of US$4.173 per gallon, the auto club AAA says that pump prices have never been higher according to its records, without adjusting for inflation.

Russian oil made up about 3 per cent of all the crude shipments that arrived in the US last year, amounting to over 600,000 barrels a day, US Energy Information Administration data show.

When other petroleum products are included, such as unfinished fuel oil that can be used to produce gasoline and diesel, Russia accounted for about 8 per cent of 2021 oil imports, though those shipments have also trended lower in recent months.

US imports of Russian crude in 2022 have dropped to the slowest annual pace since 2017, according to the intelligence firm Kpler.

Europe, by comparison, imports about 4 million barrels per day of Russian crude and refined products, according to Eurostat data.

Russia was the source of 27 per cent of Europe's crude oil imports in 2019, according to the European Commission.

Biden acted as Congress was about to move on its own. Legislation to ban Russian crude imports gained traction rapidly among both Republicans and Democrats on Capitol Hill, with congressional staff honing text over the weekend and preparing for a House floor vote as soon as Wednesday.

In moving first on Tuesday, Biden can claim symbolic credit for the measure. But he also could end up shouldering blame for soaring fuel prices that will likely follow.

"Russia's aggression is costing us all," Biden said, warning against price-gouging by companies in the gasoline supply chain. He said that his policies aren't hampering US oil drillers from increasing production, and that the companies are instead choosing not to use leases on federal land they already hold.

"Putin seems determined to continue on his murderous path no matter the cost," Biden said, accusing him of deliberately attacking civilian targets including hospitals, residential areas and a nuclear power plant.

"Russia may continue to grind out its advance at a horrible price, but this much is already clear: Ukraine will never be a victory for Putin," he said. "Putin may be able to take a city but he'll never be able to hold a country."

Britain's Prime Minister Boris Johnson said his country and others are seeking ways to deprive Moscow of income and cut their own use of Russian energy exports by becoming more self-sufficient.

"In another economic blow to the Putin regime following their illegal invasion of Ukraine, the UK will move away from dependence on Russian oil throughout this year, building on our severe package of international economic sanctions," Johnson said in a statement.

"Working with industry, we are confident that this can be achieved over the course of the year, providing enough time for companies to adjust and ensuring consumers are protected."

Business Minister Kwasi Kwarteng called on businesses to use the rest of this year to ensure a smooth transition, and said the government would set up a taskforce to work with firms to find alternative suppliers.

"This transition will give the market, businesses and supply chains more than enough time to replace Russian imports - which make up 8 per cent of UK demand," Kwarteng said on Twitter.

He also said he was exploring options to end British imports of Russian gas which accounts for about 4 per cent of supply in the country.

In anticipation of the action by Britain and the United States, oil prices rose with Brent surging past US$132 a barrel.

The European Union meanwhile is discussing a plan to jointly issue bonds on a potentially massive scale to finance energy and defence spending as the bloc copes with the fallout from Russia's invasion of Ukraine.

The proposal may be presented after the EU's leaders hold an informal summit in Versailles, France, that starts Thursday, according to officials familiar with the preparations.

Officials are still working out the details on how the debt sales would work and how much money they intend to raise, depending on the guidance they receive from leaders in this week's meeting.