Russia’s invasion of Ukraine triggered an immediate jump in already rising oil prices, which analysts speculate will continue to rise as the crisis continues and the global response escalates. In addition to severe economic sanctions against Russia, on March 8, 2022, the White House announced a U.S. ban on Russian oil imports and new investment in Russia’s energy sector.
In 2021, Russia was the second top crude producer in the world, following behind the United States. The worldwide supply of oil is already lagging behind the rapid increase in demand which followed the market decline in production during the height of the COVID-19 pandemic. The unrest in Russia and uncertainty as to the availability of its oil supply on the market will likely cause oil prices to continue to skyrocket. Market participants are wary of the uncertainty and negative publicity associated with trade with Russian counterparts, and several worldwide energy companies have chosen to suspend operations in Russia, including Shell, BP, and ExxonMobil, and combined with the U.S. government’s ban, Russia is left with a shortage of buyers willing to purchase its oil. The market reacted last week, and the Brent Crude price of oil rose to $139 a barrel, the highest it has been since record prices in July 2008, and analysts speculate that prices could near $200 per barrel this year if Russian oil exports are cut off indefinitely. The International Energy Agency—who represents key industrialized countries—has announced plans to deploy 60 million barrels from stockpiles around the world to help offset the imbalance in global oil supply and demand.
Ahead of Biden’s first State of the Union address on March 1, 2022, the American Petroleum Institute called on the U.S. government to focus on policies which increase U.S. supply and support long-term American energy leadership in response to the geopolitical turmoil created by Russia’s war with Ukraine. The API outlined key steps regulatory agencies should take to signal the country’s position as a reliable global producer and supplier of fossil fuels, including a clear commitment to continued exports of oil and gas, swift approval of LNG applications and support for on and offshore leasing and development, collaboration with government agencies to ensure reliable permitting processes for oil and gas infrastructure, and measures encouraging investment in global energy projects, especially in Eastern Europe. In response to the White House’s announcement of the U.S. ban on Russian oil imports, the API issued a statement of support, noting the industry’s voluntary unwinding of relationships with respect to Russian energy assets and imports on crude and refined oil products. The API emphasized the industry’s shared goal of reducing reliance on foreign energy sources and reiterated its call on policymakers to take steps to advance American energy leadership and increase domestic production. The Biden Administration maintains that the United States and its allies have no interest in reducing the global supply of energy in the short term, but have a strong interest in degrading Russia’s status as a leading energy supplier over time.
The fallout from Russia’s war with Ukraine will continue to impact the global economy, as much of the world is already struggling to address inflation. Kuiper Law Firm, PLLC specializes in oil and gas and will continue to monitor global market trends; if you have any questions about the information in this article, or how it applies to you and your operations, do not hesitate to contact us.