Carnegie: Understanding the Risks of Sanctioning Russian Oil
With secessionist events in Ukraine unfolding, further U.S. and EU sanctions against Russia remain a policy option.
Russia’s oil sector fuels roughly forty percent of the country’s current budget, so finding an effective way to sanction it is an obvious target for the United States and its western allies. Before sanctioning Russian oil, however, it is essential to answer one key question: how will markets respond to eliminating exports from today’s largest global oil producer? The answer to this question is not reassuring—neither for Russia, nor the West. Any steps to sanction crude therefore should be considered with extreme caution.
In 2013, Russian oil output stood at a record high of 10.5 million barrels per day, surpassing that of Saudi Arabia, the world’s historic swing producer. Flow it does, but not without significant help from outsiders. Western service companies are needed to maintain Russian oil fields, international energy majors bring cutting edge technology to new development projects in Siberia or the Arctic, and joint ventures inject the necessary finance. U.S. sanctions will be able to target all of that, thus driving up costs in the Russian oil sector and reducing output.