The Daily - Will Banning Russian Oil Hurt Russia, or the U.S.?

Episode Date: March 9, 2022

On Tuesday morning, President Biden took to the podium at the White House to deliver a solemn and provocative speech. As punishment for waging war on Ukraine, he announced,  the United States would cut off Russian oil imports.Mr. Biden said the move would require some sacrifice, but would be for the greater good.How much will the ban hurt Russia, and American consumers?Guest: Clifford Krauss, a national energy business correspondent for The New York Times.Have you lost a loved one during the pandemic? The Daily is working on a special episode memorializing those we have lost to the coronavirus. If you would like to share their name on the episode, please RECORD A VOICE MEMO and send it to us at [e-mail]. You can find more information and specific instructions here.Background reading: Mr. Biden banned oil imports from Russia, calling it a “blow to Putin’s war machine.”The ban could have meaningful consequences for the U.S. economy, pushing up prices at the gas pump when inflation is already rapid. Want more from The Daily? For one big idea on the news each week from our team, subscribe to our newsletter. For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Michael Barbaro. This is The Daily. Today. The United States unleashes its most dramatic punishment so far against Vladimir Putin for waging war on Ukraine by banning the importation of Russian oil. I spoke to my colleague, energy reporter Clifford Krauss, about just how much that will hurt Russia and American consumers. It's Wednesday, March 9th. Cliff, tell us about this speech that President Biden delivered on Tuesday.

On Tuesday morning, President Biden walks up to the podium at the White House. Good morning, folks. And solemnly delivers a speech, a provocative one, that we weren't really sure he would ever give. Today, I'm announcing the United States is targeting the main artery of Russia's economy. We're banning all imports of Russian oil and gas and energy. He said, I'm going to cut off all Russian oil imports to the United States in order to hurt Vladimir Putin, to punish him and try to end his war against Ukraine.

This is a move that has strong bipartisan support in Congress and I believe in the country. Americas have rallied to support their Ukrainian people and made it clear we will not be part of subsidizing Putin's war. Biden stressed the broad support for this policy among Congress and also among Americans in general, and he said it's going to come with some sacrifice. The decision today is not without cost here at home. Putin's war is already hurting American families at the gas pump. Since Putin began his military buildup on Ukrainian borders, just since then,

the price of the gas at the pump in America went up 75 cents. And with this action, it's going to go up further. I'm going to do everything I can to minimize Putin's price hike here at home. But he said in the end, that sacrifice would be for the greater good. When the history of this war is written, Putin's war on Ukraine will have left Russia weaker and the rest of the world stronger. And God bless all those heroes in Ukraine. And now I'm off to Texas. Thank you very, very much.

I know there's a lot of... So, Cliff, let's talk about the points that Biden makes in this speech one by one. And let's start with Biden's biggest claim of all, and really his entire rationale for taking this step, which is that banning oil imports from Russia is a powerful blow to Vladimir Putin that will make it harder for him to wage war on Ukraine. Is that correct? Is this a powerful blow to Vladimir Putin? It may be. Alone, it isn't all that important because the United States is importing about 600,000 barrels a day of oil and petroleum products, which is more or less 10% of what Russia sends abroad. But basically, energy is Russia's only industry. Okay. So once you throttle the exports of energy, you are really hurting the country. The biggest companies in Russia are oil companies. The way the Russian government gets its money is from the oil

companies. So you really are sticking a dagger into the heart of the Russian economy and its capacity to send troops into the field. So I think it is important, although the numbers would suggest that it alone would not be enough to bring Putin down. Cliff, you just used the word alone, which I assume refers to the fact, as Biden did in this speech, that European countries are not banning oil imports alongside the U.S. And that stands out because so far, the U.S. and Europe have very much coordinated their punishments of Russia since the war began. What would be the impact of European countries doing what the U.S. has just done? It would be an enormous deal if Europe were to stop importing more than 3 million barrels a day of Russian oil,

but they just can't do that. They can't do that, why? Because they depend on that oil. It would be impossible for them to drive their cars, run their transportation systems without oil for many countries in Europe. And so that would be just too much for them to do that. There are other countries that can. The United Kingdom said that they were going to ban oil imports from Russia over the next year. Canada is also doing it. But for many countries, Russia is the number one source of hydrocarbons, oil and natural gas.

In fact, they get about a third of their energy from Russia. So banning all Russian oil or natural gas during the winter, mind you, when people need to heat their homes, that just is not practical. people need to heat their homes, that just is not practical. So given that Europe can't match this move, if you're Russia for now, you really just have to make up for the 600,000 barrels of oil a day that are currently bought by the U.S., right? Is that difficult to do? Can Putin work around that? Yes.

Actually, there are several things that Russia can do, but they'll need cooperation from other countries, primarily China. China is a big importer of Russian oil. Currently, its pipelines are full, but it could accept more oil, probably at a steep discount, which is the way China bargains, by ship. Those tankers, it'll take days, if not weeks, to organize this, but tankers that would be going from Russia to the United States and Europe and other places could go to China instead. And China could make up a good bit of the four million barrels, more or less, that are going

to Europe and the United States every day and then import less from the Middle East and other places. And that oil, in turn, could go to Europe and the United States. So you could have a reshuffling of the deck. And also you have India, which continues to buy oil from Russia. India and China are big economies. They have their own foreign policies. The question is, how much do they want to be identified with Russia and its campaign in Ukraine? So, Cliff, just to recap, the U.S. move here isn't crippling to Russia. Much of Europe

hasn't come on board, which would potentially be crippling to Russia. And from what you just said, Russia may be able to make up for what the U.S. says it will not be buying by turning to China or India. So altogether, this doesn't sound like a fatal blow, a game changer, something that's going to, in a matter of days, end this war? Well, let me try to unpack that. Michael, it's too early to say how crippling this will be. And as far as ending the war goes, you know, historically, sanctions have an uneven record as a foreign policy tool. Sometimes they work, as in the case of South Africa, and sometimes they don't work, such as with Iraq, Iran, Venezuela, Cuba, or they don't work well or quickly. So, you know, we will see. It's very hard for the United States,

which basically, you know, the United States consumes one fifth of the world's oil, which is quite a lot. We produce a lot of oil, but we're not the entire world economy. Far from it. It's not like the end of World War Two, where we were, you know, the 100 pound gorilla. In and of itself, this ban is not going to be a fatal blow. It's not going to end the war. It is one more tool that the United States and its allies have to try to help the Ukrainians and make the invasion that much more painful for Russia and President Putin. We'll be right back. So Cliff, we're still trying to figure out exactly how much pain this is going to cause Russia.

But in his speech, Biden made very clear that this will cause pain to Americans. will cause pain to Americans. So talk about that a little bit. Exactly how much pain will this ban on oil imports from Russia cause within the United States? It will create a lot of pain, directly and indirectly. Directly because oil is the main component of the price that drivers pay at the pump. So oil prices go up, gasoline prices go up.

And already gasoline prices have been soaring. Every state's different, of course, but $4 a gallon, and in some states $5 a gallon, and going higher. Every time people see the price of gasoline go up on their corner, it hurts. And then less directly is the increase in prices of diesel, which is also, you know, oil. Diesel, of course, is what truck drivers are buying, and it runs our transportation system for goods, not just on trucks, but on trains. And then jet fuel.

Jet fuel also comes from oil. So this is going to hurt the airlines, and it's going to mean that people who were hoping that now that the COVID pandemic seems to have receded, we can go on vacation now. Well, that airline ticket is going to cost a lot more. Can you just explain why gas prices will go up as a result of this? Because from everything you just said, we don't get that much oil from Russia. So how does this work? Okay, well, there are two things. First of all,

gasoline prices are determined by oil prices. And the oil price is a global price. Okay, so when there are shortages in Europe or Asia, and the price of oil goes up, it goes up for all of us. The world consumes approximately 100 million barrels a day. And the world produces approximately 100 million barrels a day. So you cut off, you know, a couple of million barrels and suddenly we're a little short. The price will go up a lot higher than you might expect. Mm-hmm. So, Cliff, back to Biden's speech. Did he say how he plans to mitigate this pain, to lessen it?

Well, he talked about releasing oil from the strategic reserve, the 60 million barrels, I believe was the number he used. This is a reserve of oil that the U.S. keeps for basically emergencies. It's basically for emergencies. We and the other industrialized countries and even China have these reserves. We've been coordinating with other countries the release of the reserves. We started doing this the end of the latter part of last year. It's had very little impact. So when you think about a release of 60 million barrels, which will happen over time,

that's basically three days consumption in the United States. So it's not that impactful. And based on your reporting, can the U.S. pretty quickly make up for the oil that it has been getting from Russia from alternate providers, alternate countries? If all things go right, most of the Russian barrels can be replaced, but it would take six to eight months at best. Wow. So what you have is, first of all, the United States could increase its production over time, but at the moment, there's a manpower shortage. There's a sand shortage for hydraulic fracturing. There just is not the capability to rev it up that fast. But we could increase our production another million barrels a day. So that's something. If you can renegotiate

the nuclear agreement with Iran and end sanctions with Venezuela. You could probably get. These are not things that happen overnight. Things that. But but there's movement. That's could be another million and a half barrels a day. And then you have Saudi Arabia, the United Arab Emirates and Kuwait, which collectively have spare production capacity of about two and a half million barrels a day. If you can convince them to produce more, and they've been very cautious, and by the

way, they happen to be in an alliance with Russia called OPEC Plus. If you could do all of that, we'd be in much better shape, especially considering that probably demand will come down as prices go up. So you put that all together, we can balance things. But as you can see, it means that a lot of things have to go right at the same time. It's not going to be easy. Right. Cliff, stepping way back, Biden's pitch here in this speech essentially seems to be, I know this is going to be painful. I'm asking the American people to make a sacrifice

in the name of the Ukrainian people and their freedom. And I know it may not change the course of this war, but he seems to be thinking that Americans will support this. He talked about bipartisan support for this decision. But I wonder if that's realistic, given that Americans have been struggling with inflation for quite some time, and they're so sensitive to gas prices. I think he was obliged to make this speech. I think this is a defining moment. And I think the American people, while we're very divided, of course,

we do tend to come together in moments of crisis and challenge. This is a national challenge, and I think a lot of people are going to go with the president, I mean, including Republican members of Congress. So I think because Republican members of Congress are saying we need to do something and we need to cut off Putin, it gives him political cover. He needed to take a leadership role because Congress would have done it without him. Really? And that would have made him look very weak. They could do that. Yeah, I think Congress was moving in that direction. You could see it. Nancy Pelosi and the Republican

leadership of Congress aren't usually on the same team. But on this issue, they are. And they were actually ahead of the Biden administration. I'm sure when Biden was weighing this decision, he considered the damage and the risk to the American economy. But at the end of the day, it made political sense for Biden to embrace this policy, a policy that was called for by Democrats and Republicans in Congress and seems to have the support of the American, he was appealing to the country to unify at a moment of crisis. So that it's not just you're paying higher prices and you're suffering, you're suffering for a cause.

Right, which is perhaps why Biden is calling this Putin's price hike. Exactly. I mean, there's the marketing. It's the Putin price, not the Biden gasoline price. So in other words, this could end up being, in theory, a political boon for Biden rather than a political burden. Gas prices are going up, but Americans can now blame Putin and they can unite around a greater cause. Absolutely. I mean, it's a deflection. And if Russia gets bogged down and eventually has to negotiate and withdraw,

gets bogged down and eventually has to negotiate and withdraw. Biden can take at least some of the credit for getting behind the Ukrainian people. And one way or another, I think Americans are more willing to pay higher prices at the pump if they believe that this sacrifice is in solidarity with people who are suffering on their television screens day in and day out. I think that American people feel for the Ukrainian people and they're willing to pay a higher price. At least, you know, many Americans are going to feel that way. For how long, we're not sure. Well, Cliff, thank you very much. Good to be with you. On Tuesday, the average price for a gallon of regular gasoline in the U.S. hit a new high of over $4,

an increase of 72 cents from just a month ago. At the same time, efforts to further isolate Russia grew. Several major American brands, including McDonald's, Pepsi, and Starbucks, said they would suspend their operations in Russia in protest of the war in Ukraine. Meanwhile, in Russia, Putin seemed to acknowledge the economic pain inflicted on his country by signing a law that would increase payments to retirees and lower-income families. and lower-income families.

As of Tuesday night, the Russian army had yet to take control of any major Ukrainian cities except the southern port of Kherson, as Ukrainian forces continued to successfully defend much of the country. We'll be right back. Here's what else you need to know today. On Tuesday, the first trial of a participant in the January 6th attack on the U.S. Capitol ended with guilty verdicts on all counts, in a major victory for federal prosecutors. Jurors found Guy Reffitt guilty of five felonies including obstruction of an official proceeding armed trespassing and witness tampering the trial featured testimony against Reffitt from his own children who said he threatened to kill them if they turned him in to police. Nevertheless, his son met with an FBI agent that same day

and reported his father's role in the attack. Today's episode was produced by Sidney Harper, Luke Vanderplug, and Diana Witt. It was edited by John Ketchum and Larissa Anderson, contains original music by Alisha Ba Etube and Dan Powell, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Lansford of Wonderly. That's it for The Daily. I'm Michael Barbaro.

See you tomorrow.