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Russian Energy Import Ban on the Table
March 07, 2022
Oil and gas import bans are now on the table after the first round of economic sanctions have failed to de-escalate Russia's invasion of Ukraine. NATO nations, particularly European nations, were hesitant to push for a ban on energy imports because it would be a self-inflicted wound in the form of surging inflation as energy commodity prices would no doubt increase above their already elevated level.
The EIA provided a pretty good explanation why. European gas supplies come from three main sources, the US, Qatar, and Russia, which provided almost 70% of liquefied natural gas (LNG) in 2021. The oil and gas import ban would threaten the 20% share that flows through Russia. In 2021, that was a total of 10.7 Bcf a day imported in Poland, Germany, and Slovakia. The rise of Russia as an importer of gas to Europe is relatively new, but the dependence has developed quickly. Pivoting to other key sources like the US and Qatar would likely be more difficult and take some time due to logistics, but it would be a necessary step if import bans came about.
A small silver lining can be found in the European Union's steps to increase the share of renewable energy use to make progress towards climate targets. It has helped reduce overall natural gas imports fall from a peak in 2019. That fall should continue in the next few years, and now it will could happen at a faster pace given new motivations to wean itself off fossil fuel imports from a warring neighbor. However, renewable resources are not nearly bulky enough to protect the EU nations from the economic pain that would come.
From Russia's perspective, a ban on energy exports deal another crippling blow to its economy and allow for more selling of the ruble. The crashing of the Russian currency could be a replay of the 1998 currency crisis that the nation experienced after it fell badly into debt which led to a default and extreme currency controls by the Russian central bank. Of course in that period, oil was around $25 a barrel and declining, so the power that Russia has as an energy superpower now did not exist then. At the moment, this is the only economic power that could keep the economy afloat so long as it can find buyers for its oil and gas which are trading near record highs.