Pressure on US and European governments to directly target Russia's energy exports was rising Feb. 27, although analysts still consider such an escalation of Western sanctions as unlikely given the potential for global economic damage.
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Helima Croft, RBC head of global commodity strategy, said Feb. 27 that it could "eventually prove untenable for Western nations to continue to publicly exempt energy transactions, in order to shield their domestic consumers," if there are high civilian casualties or a compelling appeal by Ukrainian President Volodymyr Zelenskyy for such an action.
"We think the 'if not now, when?' call on energy sanctions will likely grow louder as Ukrainians continue to mount a fierce resistance to the Russian onslaught," Croft said in a Feb. 27 note.
Ukraine's foreign minister Feb. 27 urged Western governments to impose a "full embargo for Russian oil and gas."
Energy sanctions remain on the table, White House press secretary Jen Psaki said Feb. 27, a marked change in tone after senior Biden administration officials have insisted for days that they had all intention of carving out energy trades from any financial restrictions.
"Energy sanctions are certainly on the table," Psaki told ABC's "This Week" program. "We have not taken those off. But we also want to do that and make sure we're minimizing the impact on the global marketplace and do it in a united way."
Pressure on US refiners
The US imported 595,000 b/d of Russian crude and refined products in November for an average of 696,000 b/d from January to November, the Energy Information Administration said in the latest data. It will report December data Feb. 28.
In 2021, the US imported an average of 484,000 b/d of Russian oil, according to S&P Global Platts Analytics.
Russia was the No. 3 oil supplier to the US in November after Canada and Mexico, but the flows appear to have sharply fallen since the Ukraine crisis intensified.
Platts Analytics said only one Russian cargo of crude with about 750,000 barrels of ESPO has arrived in the US in 2022, with another 1.6 million barrels of VGO and 1.25 million barrels of fuel oil.
US reliance on Russian oil surged after January 2019 sanctions against Venezuela's PDVSA cut off flows of heavy feedstock.
But Gulf Coast refiners have other options, including easing exports of Mars or other domestic sour crude or increasing imports of Canadian or Latin American heavy grades at the cost of margins, according to Platts Analytics.
Sanctions issue in the air
Talk of potential energy sanctions was "certainly starting" in Washington, said Bob McNally, president of Rapidan Energy Group and a former energy adviser to President George W. Bush.
"I think if we do it, we will phase them in, though," McNally said Feb. 27. "I'm not sure yet about the probability, but it's certainly higher than it was 72 hours ago."
Rachel Ziemba of Ziemba Insights said she still sees energy sanctions as unlikely, but the Biden administration might attempt "targeted political reductions in energy volumes," for instance, by urging US buyers of Russian crude to find alternatives.
"The US-led coalition has been pretty clear that they are not ready to cut off supplies, but there will be financial challenges engaging in these transactions," she said, adding that Russia holds significant power to roil energy markets by cutting off its exports in retaliation.