Oil prices retreated after having hit more than $130 per barrel on Sunday evening as markets panicked over a possible embargo of Russian crude oil.
The United States and its European allies are discussing a ban on Russian oil imports in the latest attempt to punish Moscow for its incursion in Ukraine.
Europe is heavily dependent on Russian gas and a bit less dependent on its crude, but, according to unnamed sources close to the talks, European governments have become more willing to sanction crude exports, Reuters reported earlier today.
"We are now in very active discussions with our European partners about banning the import of Russian oil to our countries, while of course, at the same time, maintaining a steady global supply of oil," U.S. Secretary of State Anthony Blinken told NBC.
"The goal is to isolate Russia and to make it impossible for Putin to finance his wars," European Commission President Ursula von der Leyen told CNN on Sunday. "For us, there is a strong strategy now to say we have to get rid of the dependency of fossil fuels from Russia."
At the same time, U.S. Congress is working on its own set of sanctions targeting Russian oil, even though the United States imports roughly 200,000 bpd of Russian crude and about half a million in refined products that may be difficult to replace because of sanctions against Venezuela and Iran.
Analysts, meanwhile, are warning that a ban on Russian oil would push prices even higher.
"A boycott would put enormous pressure on oil and gas supply that has already felt the impact of increasing demand," analysts from CMC Markets said.
"Prices are likely to rise in the short term, with a move toward $150 a barrel not out of the question," the analysts also said, "Such a move will put further pressure on global economies, pushing inflation higher, leaving central banks debating how quickly rate hikes should be implemented."
By Irina Slav for Oilprice.com
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The United States is the world’s second largest importer of crude oil after China importing an estimated 9.0 million barrels a day (mbd). It is the most vulnerable to oil price shocks than all the other major economies.
The energy crisis embroiling the EU will worsen further and impact very adversely on the economy reducing its growth prospects in 2022 to just above zero.
The impact on Russia’s economy will be muted for the simple reason that a big chunk of its oil exports will go to China. Moreover, selling a smaller volume at much higher price diminishes the financial loss of Russia.
Russia’s economy is virtually self-sufficient meaning that Russia doesn’t have to import anything . So despite the sizeable devaluation of the rouble against the dollar, its purchasing power inside Russia is intact. That is how Russia is financing its military operations in Ukraine. That is also why Russian lifting of a barrel of oil at $2.8 a barrel is lower than even Saudi Arabia’s at $3.0-$3.5.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London