Last Friday, at the fag end of
its term, the Biden administration imposed additional economic sanctions on
Russia for its ongoing war against Ukraine. These sanctions targeted two major
Russian oil companies—Gazprom Neft and Surgutneftegas—along with approximately
180 oil tanker ships that allegedly form part of Russia's "shadow
fleet," operating outside Western regulations. The intent was clear: to
cripple Russia's oil ecosystem, which explores, produces, and exports oil,
thereby drying up a critical revenue stream that funds its military operations
in Ukraine.
While this marks the latest in a series of sanctions by the U.S. against Russia, the effectiveness of such measures is questionable. Two major issues stand out. First, these sanctions have done little to deter Russian President Vladimir Putin from continuing the war. Second, targeting Russia's oil industry risks a significant reduction in global oil supplies, with severe economic repercussions.
To understand the impact, it’s essential to grasp the dynamics of global oil production and consumption.
Russia’s Role in Global Oil Production
Russia is the world’s third-largest oil producer, following the United States and Saudi Arabia. According to the U.S. Energy Information Administration (EIA) and International Energy Statistics, Russia produced 10.75 million barrels of oil per day as of December 2024, accounting for 11% of global production. In comparison, the U.S. contributes 22% and Saudi Arabia slightly over 11%. The Biden administration’s sanctions effectively aim to remove a significant portion of global oil supply from the market.
Global Oil Consumption Dynamics
The top four oil-consuming countries are the U.S., China, India, and Russia. The U.S. leads, consuming 20.01 million barrels daily, followed by China (15.15 million), India (5.05 million), and Russia (3.68 million). This represents 20%, 15%, 5%, and 4% of global consumption, respectively.
Currently, Russian oil primarily goes to China and India, with revenues from these exports directly funding its war efforts. According to a Reuters report in 2024, India imported 36% of its oil from Russia, while China imported 20%. Going by the above reported figures,this translates to daily imports of 3.03 million barrels by China and 1.82 million barrels by India. By targeting Russian oil exports, the Biden administration is effectively removing nearly 5 million barrels per day from the market.
The Inflationary Ripple Effect
Such a substantial supply cut is likely to drive up global crude oil prices, triggering inflationary trends worldwide. The U.S., already grappling with inflation, is not immune. Rising crude prices could prompt the Federal Reserve to further hike interest rates. That can significantly trigger a sharp increase of the interest rate on the popular 30-year home loan mortgage which according to the New York Times is already perched at high level of 6.93%.
These developments will put additional strain on middle-class Americans, who are already feeling the pinch of higher living costs. The timing of these sanctions raises questions about their intent. If Russian oil exports to China and India have been a known factor since 2022, why were these measures not implemented earlier? Was the Biden administration waiting for the U.S. elections to conclude before taking such a politically sensitive step?
Doubts About Effectiveness
As for Putin, these sanctions are unlikely to deter him from intensifying his military campaign in Ukraine. Reports indicate growing fatigue among Ukrainian forces, with some soldiers reportedly deserting their posts. Meanwhile, the 180 sanctioned vessels in Russia’s shadow fleet operate outside Western regulations, casting doubt on the sanctions’ practical impact.
History also shows that inflation, once ignited, is difficult to control. Even a mere announcement of sanctions can lead to price surges, and reversing the measures may not immediately quell inflation.
Conclusion
Ultimately, it is the average American citizen who bears the brunt of these ideologically driven decisions.As the Biden administration exits, it leaves behind a complex economic and geopolitical challenge that the incoming administration must navigate. Whether these sanctions achieve their intended goals or exacerbate global and domestic economic woes remains to be seen.
