As a major supplier of the world’s oil, Moscow has the power to do serious damage to oil markets worldwide, especially in the EU and the US, if other nations refuse to comply with its demands.
As it currently stands, Russia is the world’s largest exporter of oil and oil products to global markets. Most Russian oil exports, about 60%, end up in Europe via the Druzhba pipeline. One of the largest oil pipelines in the world, the Druzhba pipeline runs from the Russian heartland, through Ukraine, and into Eastern Europe. This pipeline is a crucial lifeline for European oil, capable of supplying the European Union with about 2 million barrels of oil every day.
This oil supply is currently being threatened as sanctions against Moscow intensify due to the brutal invasion of Ukraine by Russian forces. These sanctions include bans on the SWIFT global financial messaging system, sanctions against Russian oligarchs, and even potential embargos on Russian oil and gas. This will have a devastating impact on the global oil market, especially China and Europe, who are already very reliant on Russian oil.
Unfortunately, countries worldwide, especially the United States, are beginning to see the consequences of Russian aggression in the form of rising gas prices. This comes as oil prices skyrocket to over $100 per barrel due in part to Russia’s invasion of Ukraine and the resulting international backlash. This is just the beginning of a massive energy crisis. As the world attempts to wean off of Russian oil, it will have to deal with an energy crisis at a magnitude not seen since 1979.
The market’s dramatic reaction to Moscow’s invasion of Ukraine seems to point to a larger issue: the world’s addiction to Russian oil. This addiction can have deadly consequences as Russia can blackmail the rest of the world to act according to its interests.
Currently, the United States plans to ban imports of Russian oil. This does not seem like a bad idea, especially since the US is the largest producer of oil in the world. However, the rise in gas prices in the US in response to Russia invading Ukraine makes it evident that this may not be enough to supply growing demand for oil products. 3% of American oil imports come from Russia, which is not a lot. However, the American oil market’s reaction to just a 3% decrease in oil imports would be quite devastating. The United States is facing rising gas and oil prices, but it is lucky to have relatively low reliance on Russian oil.
The EU, however, is not as lucky. 25.5% of oil imports and 43.9% of gas imports in the EU come from Russia. This indicates a massive dependence on Russian oil in Europe. Sure, the EU could decide to embargo imports of oil from Russia, but this would result in catastrophic consequences. Much of these imports also come from the Druzhba pipeline, which transports oil through Ukraine. Now that Ukraine is in the middle of war with Russia, this crucial pipeline is at risk.
Russia has the ability to use this European reliance on Russian oil as leverage. This means the potential for Russia to hold European oil markets hostage is high. If Putin is confident enough to invade Ukraine, he is certainly confident enough to blackmail the EU to do his bidding. This includes lifting sanctions against Russia, allowing Moscow to invade Ukraine with relatively little consequences.
Oil is crucial for construction, plastics production, and especially gasoline. If the EU eventually decided to cut off Russian imports of oil, this would have an immense impact on every sector, especially transportation. The European economy would suffer greatly from going cold turkey on Russian oil imports.
This leads to a disturbing dilemma: should European nations sacrifice their economies and halt imports of Russian oil, or should they turn a blind eye to Russian aggression and set a dangerous precedent? This is a difficult situation with no easy answers. Other oil rich countries, such as Venezuela and Iran, were at least overtaken by nations more receptive to exporting their oil abroad. However, this time things are different. Russia exports oil to countries worldwide, especially the EU and China, some of the largest economies in the world. All Russia needs to do is cut off these oil supply lines (the Druzhba pipeline for example) to cause serious damage to the world economy.
As it exists today, the oil market is larger than ever. It is also more fragile than ever due to Russia’s invasion of Ukraine. All it will take to set off an international energy crisis is one bad actor disrupting the world’s supply of oil. Unfortunately, because of the unpredictable actions of Putin, this energy crisis may not seem so far off.