The search for policy options to help Ukraine continues. I have already covered how neither U.S. military intervention nor a no-fly zone would be helpful. On March 8, President Biden presented another option. He announced that the U.S. government would not allow the import of Russian, oil, natural gas, or other forms of energy on U.S. soil. Since natural resources accounted for 60 percent of Russia's GDP as of 2019, it seems at first glance that such a ban would hit Russia where it hurts. The idea is to cut off revenue to Russia so that it is less capable of carrying out its war against Ukraine.
The market for petroleum is a global one. What does this mean? If the U.S. decides to not import Russian oil, the demand would simply be reallocated in a way in which other countries pick up the imports. As the Cato Institute brings up in its critique of the Biden administration's misunderstanding of energy markets, "The global market for oil depends on the amount demanded and supplied, not where it comes from or where it goes." In other words, the nature of the petroleum market means that the unilateral ban will have next to no impact on the demand of Russia's natural resources. It is possible that Russia would make less on its natural resource exports, which could diminish some of its revenues. However, it is not plausible that a unilateral ban from the U.S. will harm Russia enough to incentivize it to pull out of Ukraine.
Even if the market for petroleum did not work as described in the previous paragraph, the United States would not be able to make the desirable dents. In 2019, the United States accounted for 7.5 percent of Russian oil exports. The United States does not import natural gas from Russia. In contrast, Europe accounts for more than half of Russia's oil exports. How Europe decides to respond is much more meaningful than what the United States does. Given the European Union's reliance on Russia natural resources, it would be hard-pressed to join the United States in this endeavor, although Anglo-Dutch oil company Shell has already been pressured to cease business with Russia. Economists at the University of Chicago's Initiative on Global Markets overall predict a high likelihood that such a move would result in recession throughout Europe. After all, those who trade together are likely to stay together.
Yes, the United States is looking to negotiate with other countries for more oil. Meanwhile, the citizens of the United States is going to see higher prices at the gas pump. The import ban will almost certainly attribute to the volatility that already exists in the petroleum market because speculators are trying to build in that possibility into oil prices. If the import ban is not unilateral and Europe catches on, it is likely to reduce energy supply and cause these commodity prices to spike further, according to Caroline Crane of Capital Economics. Economically, that makes sense. An import ban reduces supply. A reduction in supply increases prices. That insight hardly surprises me.
Regardless of whether this energy import ban is unilateral or more multilateral, we have a policy of a natural resources import ban that will do little to nothing to change the outcome in the Russo-Ukrainian War. We are dealing with a geopolitical minefield. In the interim, the volatility will continue to drive up gasoline prices and could cause economic downturn, especially in Europe.
Biden could do things to ease the pain at the gas pump such as repealing the Jones Act, reinstating the Keystone pipeline, or reviewing offshore projects in the Gulf of Mexico. Those would be sensible things to do. Instead of finding ways to increase U.S. energy production or make the costs of production and shipping cheaper, Biden's agenda and policy decisions suggest he will simply select policies that will drive up energy costs. It would be great to write about a policy that could actually help peacefully put an end to the Russo-Ukrainian War, but as my studies in public policy and time analyzing public policy have taught me, there are many more incorrect policy responses than there are correct ones.
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