(Bloomberg) --
There’s a paradox haunting threats to cut off imports of Russia’s oil to punish it for its invasion of Ukraine: the more markets take the threat seriously, the more valuable its most important export becomes. At least in theory.
The predicament was noted by Elina Ribakova, deputy chief economist at the Institute of International Finance, in a tweet early Monday as benchmark Brent crude surged as much as 18% to $139 a barrel. The price jump came after U.S. Secretary of State Antony Blinken said the Biden administration and its allies were in talks about banning imports of Russian energy.
So far they haven’t done so, which means that if Russia can find enough buyers of its oil, it stands to benefit from higher energy prices caused by its invasion, even as other sanctions hit its economy hard and substantially reduce the living standards of its citizens. As Ribakova points out, higher oil prices could even compensate for some of the losses suffered by the Bank of Russia when the U.S. and other countries seized an estimated 40% of its $640 billion in reserves.
It’s a theoretical boost perspective right now because traders and shipowners have turned reluctant to deal with Russian oil cargoes at all, even without sanctions having been imposed. After days in which buyers balked at Russian oil, Shell (LON:RDSa) Plc on Friday purchased a cargo of the nation’s flagship Urals grade -- drawing public opprobrium -- at a huge discount to international prices.
Even after Shell’s purchase, it is by no means certain the crude is trading and flowing freely, and it’s far from clear what volume Moscow is actually managing to place on international markets. Blinken told CNN’s “State of the Union” on Sunday that the Biden administration and its allies are discussing a ban, a move that could well cut volumes -- and dramatically increase the discounts.
With the situation already looking like an oil embargo in all but name, Russia’s oil-export volumes may drop regardless of prices on international markets, putting pressure on revenues. Especially with the sanctions threat being wielded. Data published next week on crude- and fuel-export duties for April will show how much oil producers have to pay to the budget, giving an early hint about the impact the war has had on oil-related income.
Since the invasion began on Feb. 24, oil prices have increased by about $30 a barrel. Under normal circumstances, that would translate into an extra $60 billion for President Vladimir Putin’s war chest over the course of a year. If they rise to $150, as analysts at Goldman Sachs Group Inc (NYSE:GS). and elsewhere have predicted, the extra amount going to Kremlin coffers could theoretically rise to $100 billion.
The oil and gas sectors have largely been excluded from sanctions due to concerns over the economic impact of eliminating a key supplier from the market during a global inflationary spike. But calls are growing for Washington to lead efforts to formally ban imports, which the U.S. is better-placed to do given its lower dependence on Russian supplies relative to other regions, including Europe.
As Democratic Senator Dick Durbin of Illinois pointed out in a tweet on Sunday, the U.S. could have an impact on Russia even by going it alone.
Crude from Russia represents “only 4% of our oil needs but 14% of Russian world exports,” Durbin said in a series of tweets announcing that he’d be cosponsoring a bipartisan bill to ban imports to the U.S. “We cannot let U.S. dollars fund Putin’s devastating invasion of Ukraine.”
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