The International Business Transactions Blog

The Politics of Crude Aggression

By Yuki Taylor
Law Student Editor

On March 8, 2022, two weeks into Russia’s escalating military invasion of Ukraine, President Biden issued Executive Order 14066 to prohibit, inter alia, importation of Russia-origin crude oil, petroleum, liquefied natural gas, coal, and their related products, pursuant to the National Emergencies Act (50 U.S.C. secs.1601 et seq.) and the International Emergency Economic Powers Act (50 U.S.C. secs. 1701 et seq.).  The rationale for President Biden’s prohibition, as enabled by the two Cold War era Acts, is that Russia’s “unjustified, unprovoked, unyielding, and unconscionable war” against Ukraine “constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States.”

In 2021, Russia was the world’s second-largest crude oil exporter after Saudi Arabia, the largest natural gas exporting country, and the third-largest coal exporting country behind Indonesia and Australia.  The United States has become the largest oil producer, surpassing the largest exporter, Saudi Arabia, and a net annual oil exporter since 2020, thanks to new technologies to unlock oil shale.  Nonetheless, the United States still relies on imports, because it is also the largest oil consumer, devouring over 20 million barrels per day, or 20% of the world total.  Russia was one of the top five exporters to the United States in 2021, providing approximately 8% of all oil imports to the United States, following Canada and Mexico. 

In addition to the United States, Canada and Australia have also imposed outright bans on Russian oil.  For those two countries, the ban was relatively costless, as they do not depend on Russian oil.  For other U.S. allies, especially EU nations, an outright ban on Russian fossil fuels is not feasible, because they heavily depend on Russian-origin energy resources.  Meanwhile, two large net importers of fossil fuels, China and India, are leveraging Russian oil as it sinks into deep discount.  China has been the largest importer of Russian crude oil, purchasing nearly one-third of Russia’s entire production.

All oil prices on the markets, along with retail gasoline prices, have inflated with volatility due to the Russian invasion of Ukraine and the subsequent bans on Russian oil.  In particular, the retail gasoline prices have risen over 30% YTD, and continue to fluctuate.  The Biden Administration has been proactively trying to mend sour relationships with Venezuela, Saudi Arabia, and Iran, namely the world’s largest, second-largest, third-largest nations with oil reserves, respectively, and none of which is a human-rights-respecting democracy.

On March 8, the same day as the announcement of the ban on Russian oil, the Venezuela government welcomed U.S. senior officials, and as a good will gesture released two detained U.S. citizens, including a Citgo executive.  Venezuela’s oil industry and overall economy have been ailing as its crude oil production dwindles.  In recent years, the United States has toughened its sanctions against Venezuela, targeting its state-owned oil company and central bank due to the human rights abuses of its dictator, Nicolás Maduro.

After U.K Prime Minister Boris Johnson’s trip to Saudi Arabia ended empty-handed, the United States and its allies have now turned to Iran, which the Trump Administration had alienated by rejecting the Joint Comprehensive Plan of Action (JCPOA).  The IAEA (International Atomic Energy Agency) Director General met with Iranian leaders, and the two parties issued a joint statement on March 5, 2022.  The IAEA has expressed an urgent need to revive the JCPOA, more commonly known as the Iran nuclear deal.  On March 20, Iran’s supreme leader expressed hope for an economic upturn in a Persian new year speech, likely based on the rising price of oil.  Notwithstanding, on March 3, 2022, the Biden Administration affirmed a one-year extension of national emergency declarations with respect to both Venezuela and Iran

On March 2, 2022, a UN resolution demanding that Russia immediately withdraw all troops in Ukraine was overwhelmingly adopted.  However, there were five nations opposed to the resolution: Belarus, Eritrea, North Korea, Syria, and Russia itself.  Additionally, there were 35 abstentions, including China, India, South Africa, and a number of other African nations.