IEEJ：March ©IEEJ 2022
Special Bulletin
A Japanese Perspective on the International Energy Landscape (575)March 9, 2022

U.S. Imposes Energy Embargo on Russia
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn March 8, U.S. President Joe Biden told a press conference at the White House that theUnited States would ban crude oil, petroleum products, liquefied natural gas, coal and other energy
imports from Russia. He immediately signed an executive order to put the energy embargo on Russia
into effect. Biden has selected crude oil and other Russian energy exports, the vital artery for theRussian economy, as a sanction target to deal a strong blow to Russia. He added the extremely toughmeasure to earlier announced economic sanctions. On top of the energy embargo, Biden announced
other energy-related sanctions including a ban on new investment in the Russian energy sector.
Regarding the energy embargo, Washington gave U.S. companies 45 days to wind down existing
contracts for Russian energy supplies.
President Biden decided on the U.S. ban on energy imports from Russia after closeconsultations with the United States’ European allies, indicating that his decision came after heconfirmed that European countries would have difficulties in participating in the energy embargo onRussia. He took the initiative to clarify his attitude of imposing the strong sanction on the Russianenergy sector. Among other countries, the Unite Kingdom announced that it would phase out crude
oil imports from Russia within this year.
In response to the announcement of the U.S. energy embargo on Russia, crude oil prices
soared further in the international market. The front-month futures contract for West Texas
Intermediate crude oil closed the day $4.30 per barrel higher at $123.70/bbl, topping $120/bbl for thefirst time since September 2008. The key Brent futures price shot up $4.77bbl to $127.98/bbl, close
to $130/bbl. In fact, Brent on the London market rose above $139 briefly on March 7 after U.S.
Secretary of State Antony Blinken said in an interview on the previous day that the United States andits allies were considering a ban on crude oil imports from Russia. The rise close to an all-time highindicated that oil market participants were strongly conscious of the big impact of the ban on
Russian crude oil imports.
As noted in “A Japanese Perspective on the International Energy Landscape (574),” thefollowing three patterns of disruptions to Russian energy exports such as crude oil and natural gas
are conceivable:(1) Supply will decrease as Western economic sanctions restrict Russian energy
transactions.
(2) Supply will decrease or stop as attacks on major Ukrainian energy infrastructure
facilities including pipelines damage them or render them inoperable.
(3) Russia will cut or stop energy exports to counter Western sanctions.
Regarding the first pattern, potential constraints on Russian energy transactions through Westerncountries’ exclusion of Russian banks from the Society for Worldwide Interbank Financial
Telecommunications, or SWIFT, has attracted attention. In fact, the European Union’s list of Russian1

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banks subject to the SWIFT exclusion did not include major banks involved in energy transactions.
However, the U.S. and U.K. decisions represent a bold sanction that directly bans Russian energy
exports within this pattern.
As is the case with the SWIFT exclusion, however, European countries, including thosethat depend heavily on crude oil and natural gas imports from Russia, would have to pay a high costfor subjecting Russian energy exports to a trade embargo. If they impose the trade embargo, they
may have to secure alternative energy supply sources to avoid energy shortages. If they urgently
procure energy resources in markets, energy prices may rise even further to their disadvantage. As aninternational market has been developed for crude oil, oil price spikes may affect all countries
equally. Crude oil price hikes on the U.S. energy embargo on Russia may exert negative impacts not
only on the U.S. economy but also on all other oil-consuming economies such as European countries
and Japan. As President Biden noted on the occasion of the energy embargo announcement, hedecided on the embargo even at the price of high costs for the United States. This means thatconsiderable determination or preparedness is required to stop Russia’s invasion of Ukraine.
In this way, the energy embargo, if triggering oil price hikes, may exert major negative
impacts on the United States as an oil-consuming country. However, US is not in a position to fear
energy shortages or become desperate to secure alternative supply source or increase market
procurement. Russia accounts for only less than 10% of the United States’ crude oil and petroleum
products imports. Furthermore, the share has followed a downtrend. The most important fact is that
the United States has almost achieved self-sufficiency in oil and natural gas. It has become a net
natural gas exporter.
The oil and natural gas self-sufficiency is a key achievement of the shale revolution thathas made rapid progress since the mid-2000s. U.S. oil production bottomed at 6.83 million barrels
per day in 2006 and increased 2.5-fold to 17.07 million bpd in 2019 before the COVID-19 crisis.
Natural gas production bottomed at 489.4 billion cubic meters in 2005 and expanded 1.9-fold to 930
billion m3 in 2019. Through the unprecedented production growth, the United States has become theworld’s largest oil and natural gas producer. Thanks to the sharp oil production growth, the UnitedStates’ rate of dependence on oil imports dramatically declined from 66% in 2006 to 4% in 2020,
almost achieving self-sufficiency. Its rate of dependence on natural gas imports peaked at 22% in2005 and declined rapidly. As early as in 2011, the United States became a net natural gas exporter.
Since 2019, its natural gas self-sufficiency rate has far exceeded 120%, meaning that net exports
have far exceeded 20% of domestic consumption.
As the shale revolution has made progress in a manner to dramatically lower the UnitedStates’ rate of dependence on energy imports, its energy security perception has changed
substantially. Since the oil crises in the 1970s, the fundamental energy policy issue in the UnitedStates had been how to address its vulnerability to a rise in the rate of its dependence on oil imports
under the recognition of supply shortage. However, the shale revolution has freed the United Statesfrom the yoke of shortage. Rather, how the United States could or should take advantage of LNG
and oil exports to maximize national interests has become a central issue for the U.S. energy strategy
based on rich energy resources. The Trump administration put forward the issue, but the issue
apparently began to surface under the Obama administration.
Now, the Biden administration has come up with the crude oil, LNG and coal embargo as a
tough sanction on Russia. If the United States were plagued with the extremely high rate ofdependence on energy imports as seen in the early 2000s, what policy would have been taken? Like2

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Europe and Japan at present, the United States would have agonized over how to address its highdependence on Russia and imports. Now, the United States has recognized that U.S. LNG will play akey role in allowing its allies to lower their dependence on Russia. The Biden administration might
have recognized that it is important for the United States to exploit its energy resources to enhance
its allies’ energy security. The dramatic change in the U.S. energy security perception has beenachieved by the shale administration. Regrettably, however, Europe and Japan are not allowed toadopt energy policies based on “abundance” just as the case of US, but forced to urgently consider
how to secure stable energy supply.

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