Experts believe that new sanctions on Russia’s energy sector could result in a temporary increase in gas prices and a shift in oil export patterns. President Joe Biden is reportedly considering imposing these sanctions before he leaves office, in an effort to provide leverage in negotiations with Russian President Vladimir Putin. This move could potentially raise gas prices globally, as seen in the past when U.S. sanctions against Russia resulted in higher natural gas prices amidst tensions in the region. The Federal Reserve Bank of St. Louis noted that while these sanctions have reduced Russian revenues, they have also created costs for the sanctioning nations.
The impact of previous sanctions on Russian energy following the country’s invasion of Ukraine led to rising diesel prices worldwide, as there was a shortage of refineries to meet demand, particularly after the U.S. and other countries halted energy imports from Russia. The Producer Price Index for diesel in June 2022 was significantly higher than in June 2021, according to data from the Federal Reserve Economic Data (FRED). The American Enterprise Institute (AEI) highlighted that sanctions can have various effects, such as a shift in oil export patterns and forcing sanctioned countries to sell crude at below-market prices.
While energy sanctions may result in increased oil costs, some believe that the election being over could prompt Biden to move forward with the penalties. Edward Fishman, a senior research scholar at Columbia University’s Center on Global Energy Policy, noted that the Biden administration had previously been cautious due to concerns about rising gas prices and inflation. With the election concluded and inflation under control, some of these constraints may no longer apply. This potential move by the Biden administration comes just days after the U.S. implemented fresh sanctions against Russian-linked entities involved in the construction of Nord Stream 2, a major gas pipeline linking Russia to Germany.
Overall, the impact of new sanctions on Russia’s energy sector remains uncertain but could lead to a temporary rise in gas prices and a shift in oil export patterns. The potential sanctions could provide President Biden with additional leverage in negotiations with Russian President Putin, although they may also result in increased costs for the sanctioning nations. The shortage of refineries to meet diesel demand following previous sanctions led to rising diesel prices globally, while data indicates a considerable decrease in prices since then. Advocates of the idea believe that with the election over and inflation under control, the reasons for caution on sanctions may no longer apply, prompting Biden to consider moving forward with penalties against Russia.
