US ban on Russian oil, gas import: Time for India to build its own reserves, say experts
Asianet Newsable reached out to some experts to understand the impact that US President Joe Biden's latest sanctions on oil, gas and energy from Russia will have on India as well as across the world.
Aiming to mount pressure on the Vladimir Putin administration over its aggression on neighbouring Ukraine, the United States announced to ban the imports of oil, gas and energy from Moscow. Energy resources are the main artery of Russia's economy and the move announced by US President Joe Biden aims to inflict further pain on his Russian counterpart.
Prior to this, the United States and its allies have enforced a slew of sanctions on Russia's banking and financial institutions to cause significant damage to Moscow’s economy.
Asianet Newsable reached out to some experts to understand the impact that Biden's latest sanctions on oil, gas and energy will have on India as well as across the world.
Dr Swasti Rao
Associate Fellow at Manohar Parrikar-IDSA's Europe and Eurasia Centre
Biden has taken a big step forward to bleed the Russian war machinery. The energy sector is undoubtedly the heart of the Russian economy. It has also been called Putin's blood oil.
Russia supplies $1 billion worth of oil a day to the US. The current ban is on Russian oil, LPG and coal and also stops Americans to trade with Russian oil and gas companies or investing in them. This move will drive the prices further up. Since the last year-end, the Brent prices have jumped to $130 per barrel. (End of last year was $78 per barrel).
But some more facts need to be taken into account -- the US is far less dependent on Russian oil than Europe. About 5 per cent (or less) of oil that the US imports came from Russia until last year. Since January no oil has come from Russia.
At this stage, Europe will not join because their reliance on Russian oil and gas is significantly higher (almost 50 per cent), but if the invasion continues, they might take calibrated steps towards it as a deterrence to Putin.
That probability is low because Zelensky has already dropped Ukraine's quest for joining NATO. Putin has forced Ukraine to adopt neutrality but regime change and demilitarization are still not complete.
The real major blow to Russia will only come if the EU decide to impose bans on Russian oil and gas which does not seem likely given their dependence and the current trajectory of the Russia-Ukraine crisis.
The US sanctions currently announced by Biden fall under the less severe category. The more severe way would be to not buy Russian oil and refuse to engage with any other country that does (for eg. US sanctions against Iran that forced India to stop buying oil from Iran).
The severe sanction method has not been applied yet to Russia. The current ban is about imposing an embargo (oil, LPG and coal) on Russian energy.
But the US has not forced partners and allies to do the same. Short term impact will be that prices will shoot up. And to stabilize the oil prices, the US may force the Gulf Cooperation Council to start pumping more barrels. The GCC has been wary of the US role in the Middle East after CENTCOM (US Central Command) shifted to PACOM (Pacific Command). The GCC has stable relations with Russia and would not want to risk their stability with US pressure.
Saudi Arabia has been signalling that it is not willing to pump more oil. They have an agreement with Russia that helps control the oil production levels. They are likely to take a middle way which the US is aware of.
Before the more severe sanctions like in Iran's case are announced, India should take advantage of the situation to buy and build its own reserve.
Vice President, Barclays
US President's decision to ban imports of energy sector commodities from Russia has no direct impact on India and the rest of the world as long as the US does not put sanctions on the Russian energy sector.
Given that the European Union nations are the major consumers of the Russian energy sector and the oil prices have skyrocketed beyond $120/barrel in the international market, governments may not be willing to ban Russian energy imports. That's because this might result in high inflation leading to a high fiscal deficit, which anyway is the concern for governments across the globe due to higher spending for stimulating the growth in a post-Covid-19 pandemic world.
That is why President Biden also acknowledged that not all its partners are in a position to join this ban. However, the announcement will create moral pressure on US partners to move in that direction.
For India, there is no direct impact because first, we are not joining the ban and second, our import from Russia is minuscule. In 2021, India's import of coal, oil and gas from Russia is just 1.3 per cent, one per cent and 0.2 per cent, respectively.
Given that no sanctions, India might increase the energy import from Russia if discounts are offered by Russian companies, in order to reduce its energy import bills and manage the fiscal deficit and CPI, both of which is looking to destabilise economic growth.
If no discount is offered, India would continue to maintain the status quo to have a diplomatic balance between US and Russia.
Without the price cut by Russian oil firms, the demand from the rest of the energy-producing nations will increase leading to a further rise in energy prices. This, therefore, will adversely impact oil and gas importing nations, including India. The resulting high inflation will surely impact aggregate demand in the economy and may lead to employment loss, especially for the blue collared jobs.
President Biden's decision to ban the import of Russian gas and oil would escalate the war, leaving the least impact on the US, but the debilitating burden on energy importing countries like India. The US is more or less self-dependent on crude.
The US decision will likely escalate the tit-for-tat battle. Russia has threatened a counter move to cut gas supply to Europe. All this is fuelling crude to a boiling point where India would feel the maximum heat as the world's second-largest oil importer. Russians are threatening to take crude to $300 billion per barrel.
India should pressurise the US to immediately lift sanctions on Iran and Venezuela so that global supply can be scaled up. With Saudis backing OPEC plus (read Russia) agreements, the world is clearly divided with India caught in the middle.
Major General Ashok Kumar (R)
As these energy resources, once banned, would have impacted the US economy adversely. However, there was a lot of criticism on that count, including the appeal by the Ukrainian president, wherein the US was being seen as someone who was trying to follow double standards.
On one side, it was imposing a lot of sanctions on Russian and secondly it was differing from imposing sanctions on those issues which were affecting the US directly in a big way.
However, now the President has announced the US ban on these critical items also. While this announcement is going to affect the economy of Russia in a big way because it earns a lot of revenue from exports, it will also affect the US and NATO countries.
In fact, it will also affect the rest of the world significantly and the price of crude oil and gas will go up in a big way. Once the energy becomes more and more costlier, its impact will be felt on the cost of other commodities as well.
Unless the war comes to halt in an early time frame and these restrictions have reverted the economies of the US, Russia and the rest of the world will be affected in a very-very bad manner.
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