President Joe Biden is promising severe economic consequences for Russia should it invade Ukraine. Make no mistake, those consequences will be felt by American consumers as well.
The most punishing blow Biden could land on the Russians would be to greatly restrict its oil and gas exports to the West.
Petroleum sales are a major pillar of the Russian economy. Tightening the spigot would certainly financially stagger the country.
Unfortunately, it would do the same to Europe, which gets 40% of its natural gas from Russia, and much of its oil and coal as well.
Russia’s position as a major petroleum exporter means a loss of its supplies would drive up costs on the world market. That includes the United States, where home heating and gasoline costs are already soaring. Higher fuel costs are also driving up the cost of food and most other consumer goods.
Biden is appealing to Qatar and other OPEC states to raise production in anticipation of a loss of Russian petroleum. But much of the Middle East supply is already under contract to Asian nations, and there’s not enough surplus production to replace what Russia exports.
A worldwide petroleum shortage could very likely mean a worldwide recession.
The Biden administration is weighing whether to leave petroleum out of the sanctions regimen. That would greatly reduce their effectiveness, and make extracting Russiafrom Ukraine a longer process.
Biden is hoping the financial measures imposed on Russia will cause Putin to quickly rethink his position on Ukraine. But once an economic war is declared, it can spiral out of Washington’s control in a hurry.
Russia could preemptively cut off exports on its own and wait as Germany and other European nations try to operate without a major portion of their energy supplies. It could also build a closer alliance with China to find markets for its products.
Holding a sanctions coalition together will become more difficult as the collateral economic damage spreads and deepens.
Petroleum production in the United States has not returned to pre-pandemic levels, due primarily to the lingering effect of COVID, but also to investor concerns about Biden energy policies.
Immediately on taking office, however, Biden put in place a series of executive orders designed to limit future oil and gas production and force the nation to premature reliance on more limited green energy supplies.
There is not enough surplus oil on the world market to fully replace what will be lost if exports from Russia are blocked by sanctions. Again, that that will mean higher prices for in the U.S. and elsewhere.
Other proposed sanctions also will hit the U.S. economy. For example, targeted export controls on goods containing American technology, software or equipment would harm the domestic businesses that supply $35 billion in goods and services to Russia.
And blacklisting selected Russian banks will damage Western investors in those institutions.
The reality of a vastly interconnected global economy is that thumping one country means all others feel the pain.
Biden has an obligation to explain the serious consequences to Americans of trying to alter Putin’s behavior with severe economic sanctions.
— Detroit News (TNS)
