Here’s How Biden’s Historic Ban On Russian Oil Will Hit The Economy

Topline

President Joe Biden announced an historic U.S. ban on Russian oil imports on Tuesday as the latest round of sanctions against Russia for its invasion of Ukraine, but as energy prices continue to surge amid the ongoing conflict, experts now warn that could result in higher inflation and slower economic growth.

Surging oil prices could exacerbate inflation and put more pressure on consumers, experts warn.

Andrew Harnik/ASSOCIATED PRESS

Key Facts

In a widely anticipated move Tuesday, President Biden announced a new, unilateral ban on Russian oil imports—the latest punitive actions from the West against Putin’s regime for the ongoing invasion of Ukraine.

Oil prices continued to skyrocket on the news: U.S. benchmark West Texas Intermediate now sits at $126 per barrel, while global benchmark Brent crude is trading at around $130 per barrel.

“While direct imports of Russian oil are a small portion of the total imported by the U.S., the ban will continue to put pressure on the price of oil and thus pressure the consumer,” explains Lindsey Bell, Ally’s chief markets & money strategist.

Several major economists now predict that the U.S. ban on Russian oil imports—though widely supported by the domestic public—will likely exacerbate decades-high inflation and lead to slower economic growth.

Analysts at both Goldman Sachs and Bank of America estimate that the impact on consumers from surging commodity prices will lead to a 0.3% decline in U.S. GDP growth in 2022.

Experts now predict that in a worst-case scenario, where further restrictions are placed on Russian energy markets essentially isolating them from global markets, oil prices could surge to more than $150 per barrel—even as high as $200 per barrel—for a sustained period of time.

Surprising Fact:

U.S. gas prices have soared recently, hitting a new all-time high price of more than $4.17 per gallon on Tuesday, according to AAA data. If uncertainty continues around the Russia-Ukraine conflict and oil prices spike above $150 per barrel, U.S. gas prices could skyrocket further, to more than $5 per gallon, experts warn.

Crucial Quote:

“Russia’s invasion of Ukraine—and the Western response to it—will exacerbate the supply-demand imbalance that lies at the heart of the global inflation surge,” says Goldman Sachs chief economist Jan Hatzius. “The oil price increase is hitting a U.S. economy that is already overheating.”

What To Watch For:

“A coordinated cutoff [of Russian energy markets] by the West would be more effective,” argues Bank of America’s head of global economics, Ethan S. Harris, in a recent note. While the U.S. acted alone on Tuesday, a ban on Russian oil and particularly natural gas would have a much deeper impact on European allies, who have yet to impose a similar ban. Europe heavily relies on Russian energy imports, which account for roughly 30% of its oil and 40% of its natural gas, and has no easy substitutes if those supplies are severely disrupted.

Tangent:

Already facing heavy economic sanctions from the West—and now the prospect of a ban on its energy markets, Russia warned that oil prices could surge to around $300 per barrel if further restrictions are imposed. “A rejection of Russian oil would lead to catastrophic consequences for the global market,” Deputy Prime Minister Alexander Novak said Monday, adding that Russia may cut off its gas supplies to Europe if the West proceeds with the ban on Russian oil.

Contra:

While economists from Goldman and Bank of America predict a “modest” economic impact from surging energy prices, some experts are already warning about the rising risk of a recession in the not so distant future. “Economic growth prospects will take a big hit as the Ukraine uncertainty persists,” predicts Edward Moya, senior market analyst at Oanda. “Inflationary pressures will remain elevated much longer than expected… ultimately the economy will fall into a recession at some point over the next 24 months.”