Russia’s Ukraine Invasion Could Break Oil’s Grip On U.S. Politics
When Joe Biden laid out America’s response to Russia’s unprovoked invasion of Ukraine on Feb. 24, he promised aggressive measures like a crackdown on Russian banks and a limit on exports to the country. But notably absent from his self-declared effort to defend democracy and make Vladimir Putin a “pariah,” was one of the biggest penalties he could impose: targeting Russia’s energy industry. Biden suggested, instead, that sanctions might not be possible. “As we respond, my administration is using… every tool at our disposal to protect American families and businesses from rising prices at the gas pump,” he said. “We’re taking active steps to bring down the costs.”
Although it was only a brief moment, the impact of this incident is profound. It was a moment of clarity in the face a Russian resurgent, and it seemed that protecting American customers from the cost of filling up at gas stations appeared more important than the defense global democracy. In context, though, Biden’s position was hardly surprising. Since the beginning of American foreign policy, domestic energy costs have influenced U.S. security and foreign policies for more than 50 years. The administration’s adamant efforts to keep energy prices low throughout Biden’s 13 months in office follow decades of conventional political wisdom that maintains that few—if any—issues are significant enough for consumers to willingly give up cheap gas prices to address them.
Surprisingly, the Russian invasion in Ukraine could be altering that calculation. As a growing chorus of officials in Washington calls for an embargo on Russian oil, and opinion polls show a majority of consumers willing to pay more to defend Ukraine, the Biden Administration has been forced to consider it—along with the political challenges it raises. “Every politician is going through this right about now: is this a moment to ask for additional sacrifice?” says Gernot Wagner, a professor at New York University who studies the economics of climate change.
The lasting impact of this moment could be far-reaching: it may shape not just the course of Russia’s war with Ukraine but the way politicians across the globe weigh the impact of energy prices on everything from taxes to climate change.
Understanding the political fear of high oil prices, it helps to look back to the 1970s when energy shortages were so prevalent that they inspired a Billboard hit song—Energy Crisis ’74. Throughout the decade, politicians struggled to address disruptions to the supply of oil from the Middle East, but President Jimmy Carter’s response stands out as a clear warning to the politicians who remember it.
In 1977, as the price of gas ticked higher and stations limited the size of each customer’s purchase, Carter went on television to suggest that Americans “learn to waste less energy.” He donned a cardigan and suggested turning down the thermostat. The cover of TIME declared that “Uncle Jimmy Wants You” while questioning whether Americans would actually heed his call. At the time, there was mixed response. Many were willing to give up their lives. The speech today is seen as a milestone in what was called the Carter-era malaise, which resulted into his electoral defeat. His successor, Ronald Reagan, was adamant that instead of asking for sacrifice and attempting to “force more limits on people,” he would solve the problem of high oil prices through the “magic of the marketplace.”
Since then, Presidents have proclaimed low gas prices and promised to bring them down as soon as possible. Bill Clinton took advantage of federal oil resources to lower costs. He also offered families who were affected by high gasoline prices hundreds of million dollars of aid. To express concern about the rising oil price under George W. Bush, Bill Clinton proposed several measures. “If there was a magic wand to wave, I’d be waving it,” he said in 2008. Barack Obama, to the fury climate activists, proclaimed the rise in fracking on his watch that brought down global prices.
From the beginning, the Biden Administration has fought to keep energy prices low—even as some climate advocates argued that higher prices would help address the emissions that cause global warming. The rise in oil prices last year prompted the Biden Administration to push OPEC (the oil cartel controlling 40% of the world’s crude oil production) to boost its output. Biden’s call was rejected, and he released 50 million barrels of oil from the U.S strategic reserves. “You’ve got to have affordable and resilient, reliable energy for Americans,” David Turk, the U.S. Deputy Secretary of Energy, explained to me last November. “That is a political imperative.”
The results of turning off the tap from Russia—which contributes around 10% of the oil exported globally—would make last year’s price rise look quaint. JPMorgan Investment Bank estimates that the benchmark global price of crude oil will rise to $185 per barrel if Russian oil supplies are cut. That’s up from around $120 today and $70 at the beginning of December. This could lead to severe economic consequences. According to AAA, the gas prices at the pumps in America are already higher than $4 per gallon. It could rise even further. The cost of driving has many other consequences. A sustained rise in oil prices could lead to an increase in inflation, which would negatively impact economic growth. It’s a brutal combination that would ripple worldwide.
The story of an authoritarian ruler invading the sovereign democracy nation is not the only one.The fact that more than one million people have fled their homeland seems to be enough to shake up the U.S., Europe and other countries. Politicians on both sides are now weighing the risks. The most important economic step to press Putin is turning off the Russian water tap. In January, revenue from oil and gas taxes and fees made up 45% of his government’s budget, according to the International Energy Agency. Russian oil and gas exports to Russia total over $1 billion each day. “You will not win against Putin, by directly attacking them,” said Andriy Kobolyev, the former CEO of Ukraine’s state-owned gas company as he began a trip to Washington to convince the U.S. to embargo Russian oil. “But you can make his rule and his strategy to be considered as nonsense with the relevant Russian people who understand that their whole business is collapsing.”
An increasing number of people are willing to pay. An Ipsos/Reuters poll in March revealed that 62% Americans would pay more to fuel sanctions. This is up from just 49% two weeks ago. Four out of five Americans support an oil embargo. Members of Congress are willing to take high-energy prices on the side of Ukraine, whether they feel the changing zeitgeist is afoot or simply find it alarming. A bipartisan group comprising 18 legislators announced on March 3 that they would ban Russian oil imports. Nancy Pelosi was the House Speaker immediately and endorsed this idea.
“If there was a poll being taken and they said, ‘Joe, would you pay 10 cents more per gallon to support the people of Ukraine and stop the support of Russia?’ I would gladly pay 10 cents more per gallon,” Sen. Joe Manchin, the West Virginia Democrat known as the senate’s swing vote, told reporters at a press conference announcing the legislation.
The Biden administration’s position appears to be evolving, too. After days of insisting that the U.S. wouldn’t touch the Russian energy sector, Secretary of State Antony Blinken said Sunday that the topic was under discussion with the proviso that the administration make “sure that there is still an appropriate supply of oil on world markets.” On Monday, White House Press Secretary Jen Psaki said that the administration had not yet decided whether to ban Russian oil imports.
The conversation is changing quickly in Europe too. Even though Russia is constantly at risk of political aggression, climate change worries and other threats to its security, European policymakers have considered the notion of ridding Europe of Russian fossil fuels impossible. In fact, 45% Russian natural gas is imported by the European Union. It would be an enormous undertaking to abandon Russian oil and natural gas, which makes it extremely unlikely that this will happen in the near future.
There is still movement that few thought possible. The EU is moving quickly to reduce its gas imports—as much as 80% this year, according to a Bloomberg report. In recent days the bloc has released plans to dramatically reduce reliance on gas and experts have suggested that with some reduction in demand—in other words some sacrifice—European countries could rid themselves of the product entirely.
Many people, including myself, find the acceptance of oil supply restrictions to be extraordinary. Since years the high cost of fuel has been an obstacle to most effective climate policy. Fossil fuels remain subsidized to the tune of tens of billions of dollars annually—or more depending on who you ask. The implementation of measures to directly charge greenhouse gas emissions remains a blockbuster. And regulations don’t begin to address to the scale of the challenge. There’s no doubt that this is in large part due to the immense political influence of the fossil fuel industry, but it’s also the result of the fear that rising energy prices strike in politicians.
If in this moment politicians can finally articulate that some things are worth paying for—whether it be democracy or a livable planet—it will be a watershed.
—with reporting by Simon Shuster/Lviv