The US will block the startup of the Nord Stream 2 gas pipeline to Germany if Russia invades Ukraine, a top State Department official said Jan. 27, putting a finer point on similar threats made by the Biden administration in recent months.
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"If Russia invades Ukraine, one way or another, Nord Stream 2 will not move forward," Victoria Nuland, under secretary for political affairs, told reporters during a briefing.
Nuland said the US was continuing to have "strong and clear conversations" with Germany over the future of the 55 Bcm/year project that has been built but not yet certified to start up.
German Foreign Minister Annalena Baerbock said earlier Jan. 27 that Western sanctions against Nord Stream 2 would be part of the response to a Russian invasion.
Reinhard Butikofer, a member of the European Parliament, said the US and German statements represented "formal acknowledgement of what should have been clear long ago."
The Russia-Ukraine standoff and its implications for Russian energy flows to Europe and elsewhere have exacerbated volatility in global energy markets, sending oil prices toward $90/b and leading the US to seek alternate gas supplies for Europe.
The Biden administration has promised to level crippling economic sanctions against Russia if it invades Ukraine, including financial sanctions to restrict foreign capital and exports to block US software and technologies that it says are "essential inputs to Russia's strategic ambitions."
"The gradualism of the past is out, and this time we'll start at the top of the escalation ladder and stay there," a senior administration official told reporters Jan. 25.
Other options include banning Russia from dollar trades and blocking access to the international financial messaging service SWIFT, both of which analysts see as less likely because they would have massive consequences for energy markets and the global economy.
Domestic price pressures
S&P Global Platts Analytics expects the Biden administration to stick to financial or individual sanctions that minimize any economic impact outside of Russia, given the White House's intense focus on domestic inflation and high energy prices.
Any actions to limit US imports of Russian crude would have minor market impacts, as US refiners could backfill by easing exports of US Gulf Coast sour crudes such as Mars, according to Platts Analytics. Lower US imports of Russian oil feedstocks would have a bigger impact, but Gulf Coast refiners could run Canadian or Latin American heavy grades at a cost to margins.
Russia was the No. 3 oil supplier to the US in October, after Canada and Mexico, according to the latest US Energy Information Administration data. The US imported 635,000 b/d of Russian crude and fuel oil feedstocks in October, down from a record high of 848,000 b/d in June.
The US reliance on Russian oil has been driven by the economic recovery from the pandemic and US sanctions keeping Venezuelan heavy feedstocks off the market.
Platts Analytics does not expect the US to impose secondary sanctions on Russian oil customers, given Europe's heavy dependence on the flows and already high oil prices.
"The West is unlikely to jeopardize such large volumes," Platts Analytics said.