US bans Russian oil, gas and coal imports, Know Impact on India

US ban on Russian Oil Imports Impact on India: The rise in crude oil prices globally could stoke inflation in India and thereby severely impact domestic economic growth.

US bans Russian oil, gas and coal imports
US bans Russian oil, gas and coal imports

US ban on Russian oil: US President Joe Biden on March 8, 2022 announced a complete ban on all Russian oil, natural gas and coal imports to the United States, in an effort to impose harsher sanctions amid Putin’s war in Ukraine.

Biden said in his address that the United States is targeting the main artery of Russia's economy. “We're banning all imports of Russian oil and gas and energy. That means Russian oil will no longer be acceptable at US ports and the American people will deal another powerful blow to Putin's war machine," he said.

The United States has banned oil and energy imports from Russia in a unilateral move. The European nations are yet to follow suit, with some of them including Denmark pledging to become independent of Russian natural gas.

There were reportedly some disagreements among European nations about whether to ban Russian energy imports. It is important to note that the European countries are significantly more dependent on Russian energy than the US.

Read Also: Tik Tok, Netflix, McDonalds’s, Pepsi and others suspend business in Russia; Check Full List here

US Oil Imports from Russia

The United States oil imports from Russia make up a small portion of America’s energy resource, standing at roughly 8 percent in 2021, out of which crude oil import amounted to only 3 percent.

As per the US Department of Energy, the Russian oil imports dropped to zero in the US in the last two weeks of February as US companies themselves began cutting ties with Russia amid its invasion of Ukraine.

Shell withdraws from Russia

Multinational Oil and Gas giant Shell announced withdrawal of its involvement in all Russian gas and oil products on March 8, 2022 including an immediate stop to purchases of crude from the country.

The UK-based company said in a statement, “As an immediate first step, we will stop all spot purchases of Russian crude oil, shut service stations, aviation fuels & lubricants operations in Russia."

This comes after UK PM Boris Johnson said in a joint press conference with Canadian PM Justin Trudeau and Dutch PM Mark Rutte that the nation and other Western governments are seriously considering sanctions on Russian energy exports in response to the ongoing war in Ukraine.

Will Europe ban Russian energy?

The European nations, which receive almost 40 percent of their gas imports and one quarter of oil imports from Russia are too dependent to stop it overnight. The nations have instead opted to set a goal to cut off their Russian gas imports by two-thirds.

UK Prime Minister Boris Johnson had stressed during his press briefing with the two other leaders that they have to all consider how they can move away from dependence, reliance on Russian hydrocarbons.

German Chancellor Olaf Scholz had said that although Germany supports tough measures against Russia, the Russian energy supplies remain essential for daily life in Europe. He said in a statement that Europe’s energy supply for heating, mobility, power and industry cannot be secured otherwise at the moment.

Russia is the largest supplier of natural gas to Germany, accounting to almost 38 per cent of imports currently as per government data. The gas accounts for almost a fifth of German power production.

Impact on Oil Prices

The crude oil prices jumped on March 8th after US banned Russian energy imports. Nickel prices also jumped to record high. The main international oil contract, Brent, jumped by 4.7 percent to $128.06 a barrel, while main US contract, WTI, rose by 4.1 percent to $124.36 a barrel. This is still below the 14-year peak of $139.13 a barrel that was seen on March 6th, which is the highest since July 2008.

Russia warns crude oil price may rise to $300 a barrel

Russian Deputy Prime Minister Alexander Novak warned that the ban on Russian oil and energy products by western countries will have catastrophic consequences for the global economy and push crude oil price to over $300 per barrel, if not more.

Novak said that it is impossible to replace the volume of Russian oil on the European market quickly, adding that “it will take more than one year, and it will be much more expensive for European consumers.”

How will this impact Indian economy?

India is heavily dependent on oil and energy imports to meet its domestic energy requirements. Almost 86 per cent of the country's crude oil requirements are fulfilled through imports. The global jump in oil and energy prices due is inevitably going to affect the Indian market and increase its import bills.

The rise in crude oil prices globally could add inflationary pressure and stoke inflation and thereby severely impact domestic economic growth. The headline CPI inflation rose to 6.01 percent in January 2022 from 5.66 per cent in December 2021. The retail inflation crossed the upper limit of RBI’s tolerance band for the first time in 7 months. The situation is only expected to worsen with US ban on Russian energy imports.

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