US Ponders Ban On Russian Oil, Markets Brace For Highest Oil Prices In History

As the U.S. considers further options for punishing Russia over its invasion of Ukraine, talk continued Sunday about the possibility of sanctioning Russian oil imports. With the prospect of restrictions looming, markets are bracing themselves for a surge in oil prices that may eclipse historic highs.

Speaker of the House Nancy Pelosi has voiced her support for the ban while a bipartisan consensus has begun to emerge in the Senate to put one in place, and the Biden administration has shifted from its earlier position that a ban on Russian oil would be strategically undesirable.

On Sunday, Secretary of State Antony Blinken said that “active discussions” were already underway between Washington and the EU, the largest market for Russian energy exports.

“We’ve already had a major impact,” said Blinken on NBC's "Meet the Press,” referring to U.S. sanctions on Russia’s financial institutions and oligarchs. “But we are looking, again, as we speak, in coordination with allies and partners, at this prospect of banning oil imports.”

Any ban remains in the discussion phase, but markets are already reacting to the prospect. Early on Monday morning, oil surged to $139 a barrel on fears about U.S. actions against the Russian energy sector and concerns that no deal will be reached with Iran over its nuclear program, leaving yet another oil-rich nation out of the market. Using the Brent crude oil contract, oil prices settled at $122.91.

The highest oil price on record was $147.27 in 2008 amid the Great Recession. Before the war, analysts at many of the largest global banks predicted that oil prices would climb over $120 if Russia invaded Ukraine, but some have predicted a surge to $150 per barrel or higher.

In the weeks leading up to Russia launching an attack on Ukraine, President Joe Biden was clear that Americans would bear some costs of sanctions on Russia in the form of higher gas prices. This has proven true with gas prices climbing above $4 a gallon nationally, according to the American Automobile Association.

However, the impact on the U.S. from a wider ban on Russian oil imports is likely to be more limited than in other parts of the world. Data from the Energy Information Administration show that weekly imports from Russia have steadily declined throughout the Ukraine standoff with no barrels reportedly arriving as of Feb. 25.

Russia is only the eighth-largest source of oil entering the U.S., but its market share in Europe is much stronger. Germany, the head of the G7’s rotating presidency and an essential partner in crafting sanctions on Russia, has already come out against the ban.

Annalena Baerbock, Germany's foreign minister, questioned the ban's sustainability.

“It’s no use if in three weeks we find out that we only have a few days of electricity left in Germany, and therefore, we have to go back on these sanctions,” Baerbock said in an interview with German media over the weekend.

In 2021, Russia accounted for 45% of the EU's gas imports and 40% of its gas consumption, according to the International Energy Agency. Germany was a major importer of Russian energy in 2021, along with France, Italy and Greece. Russia is also the fifth-biggest supplier of crude oil to Japan.