The Biden administration’s campaign to remove Russian oil and gas from the international market is a deeply flawed idea, which could face a simmering revolt, not only from its partners from the Atlantic alliance, but also from the emerging economies and the Global South.
Why is it that there is likely to be resistance to the US-led campaign to shut out Russia from the oil business on account of its invasion of Ukraine? There are three primary reasons that may drive a riposte from those who are not as ideologically committed against Moscow as the United States.
First, the Europeans, key members of the Atlantic Alliance, have already rejected Washington’s proposal. This is because EU heavyweights, such as Germany rely on Russia for nearly 40 per cent of its energy needs. According to the International Energy Agency, “about 60% of Russian oil exports go to European countries in the Organization for Economic Cooperation and Development, with another 20% to China. In November, Russian oil accounted for 34% of European OECD members' oil imports”.
Second, the Global South will find it impossible to afford oil prices at the pump once oil climbs to $150-to $ 200 per barrel. Such a massive price surge is bound to spiral inflation endangering collapse of demand, triggering the onset of recession if not worse. The adverse social costs of such a situation are not hard to predict.
Also read: In a sudden shift in foreign policy, US reaches out to Venezuela for replacing Russian oil
The Financial Times quoted Scott Sheffield, CEO of U.S. driller Pioneer Natural Resources, as saying that the “only way to stop Putin is to ban oil and gas exports" . He added: "[But] if the Western world announced that we're going to ban Russian oil and gas, oil is going to go to $200 a barrel, probably — $150 to $200 easy."
Third, there is a realisation in energy circles that no country in any geography can fill the supply gap that would be created if Russian oil and gas were to exit the international market. Neither the United Arab Emirates nor Saudi Arabia would be inclined to ramp up production, fearing the return of price collapse, in case, for some reason, Russia makes a full return to the energy market. The West might be tempted to see the return of Iran into the supply mainstream with the revival of the Iran nuclear deal with caveats. But, even if politically accommodated, Iran would be unable to elevate energy production, because fresh investments will take time to translate into a production surge.
In the United States, shale gas producers are also unlikely to help fill the breach left by Russia. Shale gas drillers are finding it difficult to find the right kind of workers, who have moved to renewable energy projects, to step up production. Besides, they are also worried that their expanded production, at a later date, can trigger a glut, resulting in an unsustainable price collapse. Shale gas producers need an above $50 a barrel price to stay afloat.
In short, Russia’s forced exit from the oil market is bound to stifle the economic recovery of the global post-Covid economy, shovelling millions of people in the world into poverty.
Also read: Biden announces ban on Russian oil, gas and coal imports to US
