The Hard Way Every Time - U.S. Efforts to Punish Russia Echo Response to 1973 Oil Embargo

The global reaction to Russia’s invasion of Ukraine was swift, with calls of condemnation and plans quickly surfacing for the U.S. and other countries to stop their purchases of Russian crude oil and natural gas immediately, or at least as soon as practical. The strategy has been to make the situation as politically and financially painful as possible for Russia, which has not been shy about using its energy supplies as a weapon, before or after the invasion. But those plans haven’t worked as well as hoped, and some impacts are bringing back memories of the 1973 oil embargo which, though driven by a far different series of events, may provide insight into the current situation. In today’s RBN blog, we look at the many parallels to today, including weaponized oil, regional supply shortages, price spikes and well-intentioned (if sometimes ill-conceived) government responses.

Russia’s invasion of Ukraine has been horrifying on many levels. It has displaced millions of Ukrainians, led to thousands of civilian deaths, and reduced large swaths of the country to rubble. The economic repercussions have also been profound, rattling global financial markets at a time of increasing inflation, sparking new concerns about supplies of everything from oil and natural gas to basic food items like corn and wheat, and driving energy prices — which had already been rising — even higher.

The impact on the global oil market — and the resulting increase in gasoline prices — has been a major story in recent months and a significant thorn in the side of President Biden. WTI crude oil zipped past $100/bbl shortly after Russia’s invasion and traded as high as $123.70/bbl on March 8. Although WTI has now dropped below $100/bbl, pushed lower by concerns about rising inflation and a slowing economy, its settlement price has averaged $107.47/bbl since February 24, the date of Russia’s invasion. (The average settlement was $80.92/bbl in the three months before the invasion.) It’s been a similar story for gasoline and diesel prices. The U.S. average for standard-grade gasoline stood at $4.605/gal on July 14, according to AAA, up nearly 50% from the $3.147/gal it was a year ago, as consumer demand was just beginning to rebound from the pandemic. Diesel prices have been even stronger, averaging $5.592/gal on July 14, up more than 70% from the $3.264/gal average a year earlier. And while prices have tapered somewhat recently — average gasoline prices have fallen by about 30 cents over the last month — we still see a high potential for continued price volatility in such a tight global market.

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