(Bloomberg) — The Biden administration is weighing a ban on U.S. imports of Russian crude oil as Congress races toward passing such a restriction to punish the Kremlin for its invasion of Ukraine.
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Conversations are taking place within the administration and with the U.S. oil and gas industry on the impact such a move would have on American consumers and the global supply, according to people familiar with the matter.
Earlier this week, the White House publicly rebuffed suggestions from lawmakers that the U.S. ban Russian oil. But pressure has grown for a ban along with American outrage over Russia’s invasion, and lawmakers have made clear they will act.
“We are looking at options that we can take right now, if we were to cut the U.S. consumption of Russian energy — but what’s really most important is that we maintain a steady supply of global energy,” Cecilia Rouse, the chair of the White House Council of Economic Advisers, told reporters at a briefing.
Russian oil made up only about 3% of all the crude shipments that arrived in the U.S. last year, data from the U.S. Energy Information Administration show. U.S. imports of Russian crude so far in 2022 have dropped to the slowest annual pace since 2017, according to the intelligence firm Kpler.
When other petroleum products — such as unfinished fuel oil that can be used as a feedstock to produce gasoline and diesel — are included, Russia accounted for about 8% of 2021 oil imports, though those shipments have also been trending lower in recent months.
Cutting consumption of Russian energy isn’t the only move the administration is considering. One person familiar with the deliberations noted that Russia is already in a full-on financial crisis, with the ruble cratering, stock trading halted and sovereign and corporate debt battered.
Among the implications of an oil ban the White House is assessing is if the move would actually hurt the Russian economy, or if the crude would simply go to other markets and drive up U.S. gasoline prices.
The average price for a gallon of regular unleaded gasoline was $3.84 Thursday, according to auto club AAA. Brent crude oil was trading at over $116.75 a barrel as of 2:27 p.m. in New York.
“Any restrictions on Russian flows would cause pain exclusively on the side of the buyer because the Russians can easily place their fuel oil in China or India,” said David Wech, chief economist at oil-data provider Vortexa Ltd. “That would put the U.S. in a difficult position because of the impact on gasoline prices,” he said.
Senators Joe Manchin, a West Virginia Democrat, and Lisa Murkowski, an Alaska Republican, recently introduced legislation that would block the flow of Russian oil and gas into the U.S., and House Speaker Nancy Pelosi has joined with Republicans in backing the idea. One of the people said the administration of President Joe Biden is in close touch with Manchin on the proposal, which the Senate has allowed to bypass the committee process.
There’s discussion about the need to include a provision in the legislation introduced by Manchin and Murkowski about consulting with allies.
White House Press Secretary Jen Psaki as recently as Thursday spoke out against the idea.
“Our objective and the president’s objective has been to maximize impact on Russia while minimizing impact to us and our allies and partners,” Psaki said at a briefing Thursday. “We don’t have a strategic interest in reducing the global supply of energy, and that would raise prices at the gas pump for the American people, around the world.”
But Psaki added: “We are continuing to look at other options we could take right now to cut U.S. consumption of Russian energy.”
With the U.S. running about 500 active oil rigs and at current productivity levels, Anna Wong and Tom Orlik of Bloomberg Economics estimate the U.S. can easily replace the Russian oil imports. At the 2014 peak, about 1600 rigs were in use.
But U.S. sanctions of Russian oil would also raise expectations that the European Union would do the same, forcing up energy prices and risking weaker growth in both economies, they said.
German Economy Minister Robert Habeck on Thursday made clear his opposition to such moves, warning that it would jeopardize the country’s “social peace.”
And while banning imports could crimp Russian oil production, it threatens to push prices close to record levels of $150 or more, according to some market analysts, which could have far-reaching economic repercussions both at home and around the world.
(Updates with analysts and German response beginning in 16th paragraph)
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