Efforts by the US to inflict economic pain on Russia in retaliation for its invasion of Ukraine could be hamstrung if sanctions drive an increase in energy prices. The US is the world’s largest producer of crude oil and natural gas, but for oil in particular, prices are set on the global market. Early on Thursday, Brent crude topped $105 a barrel as Russian forces invaded Ukraine.
When President Joe Biden announced a number of new sanctions on Moscow hours later, he explicitly spared Russia’s energy trade. Oil prices quickly shed earlier gains.
“I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me,” Biden said.
The comments spotlight one of the most vexing problems facing the Biden administration and European leaders as they rely on sanctions to deal with Russian President Vladimir Putin: can they put sufficient pressure on Moscow without strangling oil and gas, the linchpin of the country’s economy?
Sanctions announced on Thursday by the US and Europeans hit some of
Russia’s largest banks and wealthy Russian individuals, and also sought to cut off western exports of advanced technologies.
But for now, they are not directly aimed at Russia’s sales of oil and gas, which accounted for about half of the country’s export earnings last year and have been buoyed by the recent commodity price rally. Russia is the world’s third largest crude oil producer and the second-largest gas producer.