Why global embargo on Russian oil won’t work

A global embargo would send the price of fuel soaring. Picture: Toby Zerna

A go-it-alone US embargo on Russian oil would directly hurt only Americans – and the rest of us outside Russia - and probably pour a few billion dollars a week more into Russia’s coffers.

That is to say, it wouldn’t only be a pointless feel-good gesture, it would actually be counter-productive.

Russia would still sell its oil – at a yet higher price.

But the price of US gas, their word for petrol, gasoline – which is already pushing past the equivalent of $1.60 a litre, and remember that US states mostly don’t add on the 44c a litre fuel excise, plus now around 18c a litre GST, that Australian drivers pay - would go even higher.

Our prices would also of course follow: forget about petrol prices pushing towards $2 a litre, they’d be heading for $2.25 and points higher.

And for every 20c there’s an extra 2c of GST.

The only Russian oil embargo that would mean anything is a global embargo.

But if it actually worked, it would send the global oil price rocketing well past $US200 and you could forget about $2-plus petrol; think $3-plus.

And for who knows how long?

More likely, though – be grateful for small mercies – a global embargo wouldn’t work.

There’d be enough out there prepared to still buy the oil, led by China, which is now easily the world’s biggest oil importer.

China imports over 10m barrels of oil every day – that’s equal to about 150 per cent of total Russia oil exports, running around 7m barrels a day.

China takes about 2m of those 7m barrels.

While it couldn’t take the lot, it could certainly take much more than it now does; and it certainly would, both with ‘special deals’ with Russia and to keep the lid on global oil prices.

For an oil embargo to work, the west would have to be prepared to physically stop the oil getting out.

A global embargo against Russia would send the price of fuel soaring. Picture: Toby Zerna

That would probably mean actual war with Russia.

It would also have to be prepared to stop the oil getting into China.

That would probably mean actual war with China.

We are not talking about Rwanda and Chad.

I’d say going to war with one is problematic, with both is ‘something more’ than problematic.

In any event, successful or not, we would send the oil price to never-before seen levels with devastating impacts on the entire global economy.

It would also mean rocketing (real) gas – that’s LNG – and coal prices.

Yes, narrowly, as I’ve discussed, that would be good for Australian exporters.

Purely in price terms what we got on the gas and coal swings would exceed what we would lose on the oil roundabout.

But I think everyone would understand that such a mechanical calculation would completely miss the reality: that a world so described would be devastating for the Australian economy

It would be far worse than Covid; it would make the GFC look like a tea-party.

It would also be even more devastating for the people at the very centre of all this and whom this is supposed to be all about – Ukrainians.

Bottom line: we all need to take a collective (very) deep breath.

It’s too late to ‘give peace a chance’ inside Ukraine, and Vladimir Putin doesn’t sing that song anyway; but we should give what’s been done already a chance.

So, does all this mean the Fed should back off its promised interest rate hike next week?

And will it?

I’d have to say the answer to the second question is up in the air.

But the answer to the first, for me, is crystal clear: absolutely not.

I would concede that it should have been – pre-Invasion – doing 50 points, but now it will/should do only 25.