Fears of Russia oil blockade
March 10, 2022 - U.S. and British bans on Russian oil imports – and pressure on Europe to follow suit – could trigger a supply shock equivalent to the 1979 oil crisis, which led to a severe global recession.
Brent crude retreated yesterday (March 9, 2022) to about $112 a barrel, having surged earlier in the week to $139.13 a barrel – its highest price since 2008 – as traders fretted over the fallout from Russia’s invasion of Ukraine.
Russia is the world’s third-largest oil producer behind the United States and Saudi Arabia. In January 2022, Russia’s total oil production was 11.3 million barrels per day(mb/d). By comparison, U.S. total oil production was 17.6mb/d while Saudi Arabia produced 12mb/d. Russia is also the second-largest crude oil exporter behind Saudi Arabia.
Europe gets around 40% of its natural gas and 25 per cent of its oil from Russia, whereas the U.S. gets just 7 per cent of oil and no natural gas.
According to the IEA, Europe imported 4.49mb/d in November 2021, led by Germany, the Netherlands and Poland.
An EU boycott would mean higher prices at the pump and on utility bills. Prices for everything from food to electricity are already high partly because of surging natural gas prices in Europe.
Gasoline has risen above €2.01 per litre – the equivalent of $8.33 per gallon – while filling the tank of a compact car could cost €90 ($98).
Uncertainties have raised the prospect that oil could soar past its previous record high of $145 a barrel in 2008, almost $190 a barrel when adjusted for inflation. On Monday, Alexander Novak, Russia’s deputy prime minister, warned of $300 a barrel of oil if Europe followed the U.S. in banning Russian oil imports.