Russian Oil

Into the Weeds

The United States government has banned the import of oil from Russia, as part of the sanctions for invading Ukraine.   Russian oil represents about 7% of the oil imported to the United States.  The United States, though, is a net-petroleum exporter.  So why were we importing Russian oil in the first place?

First thing to remember, the government of the United States is not the “entity” importing oil.  The United States is a capitalist country, and private companies buy oil, not the government.  That doesn’t matter whether it’s imported or domestic, or even oil coming from US Government owned lands.  The United States government does not drill or sell oil.  It does buy some to place in a strategic reserve, but that’s about it.

It’s About Price 

The cost of gasoline is getting higher – setting “world records”.  There’s no question that Americans are frustrated:  more and more of their income is going into the gas tank.  One factor to consider is that we “got used” to artificially low gas prices during the pandemic.  Folks weren’t going places, so the supply of gas was high and the demand low – prices went down.  Then, starting in January of 2021, we began to go back to pre-pandemic life.  Gas demand went up, and prices went right up with it.  That was all happening before Putin invaded Ukraine.  

Gas prices were already high because of supply and demand – and then Ukraine happened.  That impacted the world oil “futures” markets, even before Russian oil was banned.   And that  jacked prices up even more.  None of that is attributable to Joe Biden, or even Donald Trump.  The pandemic low was a consequence of a world where fewer people went to work, or on trips, or out to the movies.  Need another example – check out the cost of an airplane flights now compared to a year ago.

Russian Oil

Why does the US import oil from anybody?  The answer is simple and complicated.  The simple answer is that it’s cheaper to bring Russian oil to the east coast of the United States, then it is to move US oil to the coast from where it’s found.  Moving oil from the Southwest to the Northeast by pipeline is expensive.  Moving it by boat is even more expensive – especially because of a law that allows sea transport from one US port to another only on US flagged and owned ships,  the Jones Act.   All of the “supertankers” are registered in Panama, to avoid US safety and labor restrictions.  

And there are only a few places in the United States where a supertanker could actually land to off-load their cargo.  So to move oil from Texas or Oklahoma or Alaska to the northeast United States is expensive.  Refineries in the northeast use imported oil because it’s cheaper than US oil would be.

Keystone Won’t Help

The second thing you’ll hear, is that we could complete the Keystone XL Pipeline from Canada, and have plenty of oil.  There are problems with that as well.  The XL Pipeline isn’t near completion,  only 8% done (Reuters). And even if it was, that pipeline is shipping tar sand oil from Canada, the dirtiest oil available.  To refine that into gasoline for cars is expensive, and polluting.  It definitely isn’t a short-term solution to replace banned Russian oil, and it’s not a good long-term solution either, in terms of global climate change.  

Is it possible for the US to generate more oil production?  Absolutely, though keep in mind the US government doesn’t drill for oil – oil companies do.  The places where they haven’t drilled for oil yet are more remote and expensive, and will take a while to produce product.  That’s not a short-term solution, and even in the medium term, oil coming from there would cost more to produce, and so cost more to buy.

But the United States government does have a strategic oil reserve, 714 million barrels of oil kept in salt caverns along the Gulf of Mexico.  (There’s a vision of steel barrels of oil stacked on top of each other, but the oil is pumped into the caverns, not stored in barrels).  To gain some perspective, the US uses about 20 million barrels of oil a day, so the strategic reserve is about a thirty-six day supply.  And the US production is about 11 million barrels of oil a day, so with just internal production and the oil reserves the US would last about eighty days (USDoE).

Keep Your Enemies Close

So what are the other alternatives?  We could get more oil on the market, by encouraging currently banned countries to produce oil:  Venezuela and Iran.  Of course, that kind of forgives Venezuela for overthrowing their democratic government and installing a dictatorship.  And when the US backed out of the Iran nuclear deal, Iran proceeded to ramp up production of weapons grade nuclear material.  So buying oil from them rewards them for that .

The ”traditional” American move would be to get Saudi Arabia and the United Arab Emirates to increase oil production to make up the difference and lower world oil prices.  But more oil is not in those countries best interest – they have oil, and it’s worth more today than it was three weeks ago.  Why should they produce more now, simply to lower the cost?  Where’s the profit for them? 

It Ain’t Easy Being Green

And one final factor to consider.  The United States is committed to becoming a “clean-energy” nation.  The “short-term” crisis in Ukraine does nothing to change the longer-term crisis the entire globe faces from climate change.  The number one pollutant is fossil fuels – coal, gas, and oil.  Reducing our dependence on those fuels is and should be a national  goal – and will have a short-term cost, whether we do it to hurt Russia, or to protect our children’s future. It’s called “chewing gum and walking” at the same time.

So banning Russian oil is going to raise prices for every American.  Gasoline, electric power, and even natural gas all have a relationship to oil prices, and those prices will likely go up.  That’s going to push Americans to find ways to conserve and reduce the amount of oil they use.  By conserving, we will take steps towards improving the environment, intentionally or not.  It’s a financial burden, but it’s something Americans ought to do for our children, anyway.

More importantly, it’s what we can do to support the Ukrainian people, who are suffering for all democracy loving peoples. Frankly, it’s the least we can do for those who are fighting the first battle on the edge of World War III. 

 Let’s hope it’s the only one.

Ukraine Crisis

Author: Marty Dahlman

I'm Marty Dahlman. After forty years of teaching and coaching track and cross country, I've finally retired!!! I've also spent a lot of time in politics, working campaigns from local school elections to Presidential campaigns.