[Comprehensive] US Considers Ban on Russian Crude Oil Exports... Oil Prices Surge, Growing S Warning Signals

[Asia Economy New York=Special Correspondent Joselgina, Reporter Lee Hyunwoo] The Western bloc, including the United States, is finally seriously considering a ban on crude oil exports, a core sanction against Russia, causing international oil prices to soar. Brent crude, the international oil price benchmark, surged as much as 18% intraday, approaching $140 per barrel. At this rate, surpassing $200 per barrel is considered a matter of time.

Economic experts watching the soaring international oil prices are deeply concerned. The rapid rise in oil prices, the tightening moves by central banks including the Federal Reserve (Fed), and Russia's military threats targeting Eastern Europe all vividly recall the nightmare of the 1970s. Some analysts predict a recurrence of stagflation?a combination of stagnant growth and soaring inflation?similar to the oil shock era. Past cases in 1990, 2000, and 2008, when oil prices doubled within a year, also serve as undeniable warnings as they triggered economic tsunamis globally.

◇"The Only Way to Stop Putin" Oil Export Ban Consideration Sparks Oil Price Surge

On the 6th (local time), Brent crude traded as high as $139.13 per barrel on the London ICE Futures Exchange. The U.S. oil benchmark, West Texas Intermediate (WTI), also showed a sharp rise, reaching $130.50 per barrel. These are the highest prices since July 2008.

Brent crude surged to the $139 range per barrel, with an intraday increase of up to 18%. This is the largest increase since futures trading began in 1998. Compared to about $68 a year ago, the price has more than doubled. WTI also doubled from the $63 range a year ago to the current level.

This rapid rise in oil prices is a consequence of the U.S. officially announcing that it is considering banning Russian oil exports together with allies such as the European Union (EU). U.S. Secretary of State Antony Blinken appeared on CNN that day and said, "We are ensuring there is sufficient crude oil supply in both markets (Europe and the U.S.)." He also indicated on NBC and CBS broadcasts that "all measures are being actively discussed and will be implemented soon," suggesting that energy sanctions will be imposed shortly.

Until now, the Biden administration had been lukewarm about energy sanctions despite criticism that "sanctions against Russia without an energy embargo are full of holes" (Time magazine). This was because they judged that the damage to the U.S. and its allies would be greater than the impact on Russia.

Russia, the world's second-largest oil exporter, accounts for 11% of global exports. There were concerns that energy sanctions could only cause international oil prices and fuel prices in various countries to skyrocket. The Biden administration, already under political pressure due to inflation at the highest level in 40 years, had no reason to take a strong stance against Russia ahead of the November midterm elections. Europe, which depends on Russia for 40% of its natural gas imports, was in the same position.

However, as Vladimir Putin's moves could not be stopped despite successive sanctions, it is understood that the U.S. and its allies are now closely examining ways to block Russian crude oil exports. Scott Sheffield, CEO of Pioneer Natural Resources, said, "The only way to make Russia stop the war by itself is to block exports of Russian crude oil and natural gas." Last year, Russia reportedly earned about $120 billion (approximately 146 trillion won) from crude oil and natural gas exports.

Additionally, Russia's obstruction of the restoration negotiations of the Iran nuclear deal (JCPOA - Joint Comprehensive Plan of Action) also partly influenced the surge in international oil prices that day. Previously, Russia warned that if Western sanctions related to the Ukraine invasion were not lifted, it could overturn the Iran nuclear deal. However, Helima Croft, an analyst at RBC Capital, pointed out, "Some expect the Iran nuclear deal to lower soaring international oil prices, but this is too small to fill the disruption caused by Russia."

Currently, the U.S. and European countries are seeking solutions to mitigate the shock caused by the suspension of Russian crude oil exports. Experts analyze that the key will be how much strategic petroleum reserve can be used.

Recently, as part of this effort, it is known that the U.S. has discussed easing crude oil export sanctions with Venezuela. The Wall Street Journal (WSJ) and others reported on talks with Venezuela, interpreting them as negotiations to replace Russian crude oil with Venezuelan crude if a ban on Russian oil is imposed. Reynaldo Quintero, president of the Venezuelan Oil Association, hinted at the possibility of substitution, saying, "How can the oil problem be solved without considering Venezuela?"

◇"A Third Oil Shock May Come" Stagflation Fears

If crude oil exports from major oil-producing Russia are banned, a direct hit to not only Russia but the global economy is inevitable.

International oil prices are expected to surpass $200 per barrel immediately. Ehsan Ul-Haq Harris, chief economist at Bank of America (BoA), predicted, "If 5 million barrels of Russian crude oil exports are halted, oil prices could rise to $200 per barrel, slowing global economic growth." JP Morgan also forecasted in a report, "If this trend continues, oil prices could soar to $185 per barrel." The market has already seen moves to avoid purchasing Russian crude oil ahead of sanctions. According to JP Morgan, 66% of Russian crude oil is struggling to find buyers.

Daniel Yergin, vice chairman of market intelligence firm IHS Markit, mentioned the 1973 first oil shock caused by Middle Eastern oil producers cutting supply in retaliation against the U.S. and the West, and the 1978 oil price surge following the Iranian revolution, warning that "a crisis worthy of being called the 'third oil shock' may come."

Especially considering the slow economic recovery after the pandemic and inflation in major countries, there are growing concerns that such an energy shock will deal a direct blow across the global economy. Nicolas Colas, co-founder of DataTrek Research, noted in an investor note, "Looking at past cases where oil prices doubled within a year, a recession soon followed."

Above all, stagflation is the most worrisome. According to a global research survey by BoA, the proportion of analysts who expect stagflation to begin within the next 12 months has risen to 30%.

Nuriel Roubini, a New York University professor known as "Dr. Doom," recently wrote in an article, "There are significant concerns about global stagflation," warning that "this would be a nightmare scenario for central banks." He said, "They will have to accelerate tightening to control inflation but slow down to avoid causing a recession as in the 1970s," adding, "Governments that have already exhausted ammunition through various stimulus measures during the COVID-19 pandemic will not be able to rely on fiscal policy."

The International Monetary Fund (IMF) also pointed out that Russia's invasion of Ukraine has already caused increases in energy and grain prices, stating, "The continuation of the war and related sanctions could further worsen the economic situation where inflation problems already exist."

This content was produced with the assistance of AI translation services.