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The Morning Dispatch: Much Ado About Oil
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The Morning Dispatch: Much Ado About Oil

The U.S. moves to ban Russian oil imports, but Europe is unlikely to follow suit.

Happy Thursday! It’s nice to know the last Russian diplomats remaining in DC have to drive on “President Zelensky Way” to get to work, and stare at a 60-foot-long Ukrainian flag once they get there.

Quick Hits: Today’s Top Stories

  • Despite Secretary of State Antony Blinken giving it a green light on Sunday, a potential deal to send Soviet-origin MiG-29 fighter jets to Ukraine fell through yesterday after the Biden administration balked at Poland’s request that the United States facilitate the transfer of the aircraft. Pentagon spokesman John Kirby told reporters the U.S. believes Russia may view such a transfer as “escalatory,” and that it could “result in significant Russian reaction that might increase the prospects of a military escalation with NATO.”

  • The United Nations’ High Commissioner for Human Rights reported Wednesday the number of confirmed civilian casualties in Ukraine as of Tuesday night had risen to 1,424, including 516 dead and 908 injured. The agency believes the true figures are “considerably higher,” and Russian shelling in Ukraine continued to intensify yesterday, striking a maternity hospital in the port city of Mariupol. 

  • The International Monetary Fund’s executive board approved a $1.4 billion emergency loan for Ukraine on Wednesday, citing the loss of life, refugee flows, and destruction of infrastructure that “will lead” to a deep recession this year. “Financing needs are large, urgent, and could rise significantly as the war continues,” IMF Managing Director Kristalina Georgieva said.

  • Following last week’s Kremlin crackdown, Twitter confirmed on Wednesday it had launched a dedicated Tor onion service, which—through encryption and server re-routing—allows users to access websites subject to internet censorship.

  • The U.S. labor market remains incredibly tight, as the Bureau of Labor Statistics reported Wednesday 2.8 percent of workers quit their jobs in January—many of them for better or more high-paying opportunities elsewhere—and the number of job openings remained near all-time highs at 11.3 million.

  • In an election separated by less than one percentage point, South Koreans elected Yoon Suk-yeol of the conservative People Power Party on Wednesday to serve as the country’s next president. A former prosecutor, Yoon campaigned on establishing closer ties with the United States and a more adversarial approach to North Korea.

  • President Joe Biden signed an executive order on Wednesday directing agencies across the federal government to study and produce reports on how policymakers can regulate digital assets and cryptocurrencies to mitigate systemic and national security risks. The order also tasks the agencies with studying whether the U.S. should issue a digital version of the dollar.

  • President Biden announced Tuesday that two Americans detained in Venezuela—one since 2017, one since 2021—were released after the administration sent a delegation to the country earlier this week. The status of the other members of the “CITGO 6” arrested on dubious corruption charges in 2017 is not clear.

  • An International Energy Agency report released Tuesday found global energy-related carbon dioxide emissions increased 6 percent in 2021 to 36.3 billion metric tons, an all-time high. Although renewable power generation grew at its fastest pace on record, high natural gas prices led to a spike in coal usage, according to the report.

  • The University of Maryland Medical Center announced yesterday that David Bennett—the 57-year-old recipient of the world’s first pig heart transplant—died on Tuesday, about two months after the groundbreaking procedure. Doctors did not provide a cause of death, but noted his condition began deteriorating “several days” earlier.

Gauging Fallout From U.S. Ban on Russian Energy Imports

(Photo by Kena Betancur/VIEWpress via Getty Images.)

It’s been a rollercoaster of a week for the oil market. In the five days leading up to Tuesday—when President Biden announced he was banning energy imports from Russia—the price of Brent crude increased 15.9 percent, and the price of West Texas Intermediate (WTI) crude was up 14.4 percent. Most of those gains vanished on Wednesday, however, with the price of both falling about 11 percent and settling around $115 and $111 per barrel, respectively.

Why all the turbulence? The market is trying to gauge supply expectations amid a rapidly shifting regulatory environment. “That $130 price point was factoring in the absolute siege mentality in the oil market, where we were staring down potentially losing all Russian output, OPEC not budging, and the Ukraine situation just worsening,” said John Kilduff, partner at Again Capital. “Now we’ve reversed all of that, seemingly, to a degree at least.”

As we noted in Tuesday’s TMD, a boycott of Russian energy that included the European Union would have absolutely devastating effects on both the Russian economy and the global oil market. “It would be really hard,” Ben Cahill—a senior fellow in CSIS’s Energy Security and Climate Change Program—told The Dispatch. “Last year, Russia exported 60 percent of its crude to Europe and about 35 percent to Asia. … You can’t just move a pipeline connecting Russia to those markets. Seaboard exports, you can divert over time, but the reality is China can’t absorb all this oil. There’s no way that Russia will be able to place it all if there’s full sanctions.”

But those full sanctions haven’t been implemented, and they almost assuredly won’t be. Far from 60 percent, the United States accounted for just 1 percent of Russia’s crude oil exports in 2020 according to the Energy Information Administration, and about 2 percent in recent weeks. That disparity explains why the White House—which has generally sought to build consensus among allies before moving forward against Putin—acted alone earlier this week. A United States ban on Russian imports may play a small role in a worsening inflationary spiral, but a European ban would likely make it a challenge for people in Europe to heat their homes. German Chancellor Olaf Scholz said Monday that Russian oil and gas are of “essential importance” to Europe, as, “at the moment,” the bloc’s needs “cannot be secured in any other way.”

“We can take this step when others cannot,” Biden said this week when announcing the move. “But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”

The U.S.-only ban—which Congress had to essentially drag the White House into implementing—will likely place some upward pressure on gas prices domestically. But on an international scale, it’s much more likely to lead to a reallocation of supply rather than a dropoff in it. “The ban is likely to have effects much more symbolic than real,” Benjamin Zycher—an energy policy expert at the American Enterprise Institute—told The Dispatch. “Symbolic effects are not unimportant in some contexts. But the argument that it’s going to impose huge losses on the Russians in and of itself, I think, is almost certainly not correct.”

Still, the existing global oil supply is failing to keep pace with demand, resulting in the return of nominal gas prices not seen since 2008 and inflation-adjusted gas prices not seen since 2015. Given the well-established negative correlation between what Americans are paying at the pump and a president’s approval rating, the White House is scrambling to distance itself from the price increases—and reverse them.

“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,” Biden said Tuesday. “I’m going to do everything I can to minimize Putin’s price hike here at home. … We’re taking steps to ensure the reliable supply of global energy.”

Thus far, those steps have taken a haphazard form. On March 1, Energy Secretary Jennifer Granholm announced the United States and 30 other countries had agreed to release a combined 60 million barrels of oil from their strategic petroleum reserves—enough to cover about 14.5 hours of global consumption. The administration has drawn the ire of lawmakers on both sides of the aisle by reportedly seeking deals with international pariahs like Venezuela and Saudi Arabia in the hopes of coaxing them to drill more. Iran nuclear negotiations are on the rocks, but lifting oil export sanctions would be a precondition of any deal reached. (The Organization of the Petroleum Exporting Countries (OPEC) has for months rebuffed Biden’s efforts to get its member states to increase production, but leaders from the United Arab Emirates appeared to flip yesterday, saying they would “encourage” OPEC to “consider” higher production levels.)

“The political left thinks that affordable energy is dirty and bad, so they are happy to export the dirty work and import the oil,” Senate Minority Leader Mitch McConnell said this week. “Outsourcing even more production to dictators and theocrats is not the answer. Dumping more subsidies into solar panels and charging stations praying everything works out is not the answer. The answer is to let Americans produce American energy.”

Biden anticipated these Republican critiques and sought to preempt them in his speech on Tuesday. “It’s simply not true that my administration or policies are holding back domestic energy production,” he claimed. “Even amid the pandemic, companies in the United States pumped more oil during my first year in office than they did during my predecessor’s first year. We’re approaching record levels of oil and gas production in the United States, and we’re on track to set a record of oil production next year.”

Biden signed an executive order almost immediately after taking office that paused new oil and natural gas leasing on public lands, but a federal judge blocked it back in June, resulting in the Biden administration overseeing in November the largest offshore oil and gas lease sale in U.S. history. (Though a different federal judge later blocked that, too.) Several administration officials—most notably Press Secretary Jen Psaki—have in recent days repeatedly pushed the fact that there are 9,000 approved drilling permits that are not currently being used.

Oil and gas industry experts, however, argue that’s a dramatic oversimplification. “Once leases are sold, the industry has to litigate with the environmental groups about how exploration and all the other investments are going to play out,” Zycher said. “Often, leases have to be combined in such a way that horizontal drilling will work.”

Looking at the bigger picture, Zycher argued the Biden administration’s biggest contribution to higher energy prices has been its push—both rhetorically and through regulation—to speed up the United States’ transition away from fossil fuels and toward renewable resources. “A long-run policy of forcing an artificial shift away from fossil fuels automatically means that, over time, there’s less investment in exploration development, infrastructure, pipelines, and all the rest,” he told The Dispatch. “Their policy is to make fossil energy more expensive artificially, which raises prices in the future, and therefore prices now.”

Back in early November—when the average price of regular gas in the United States was $3.42 per gallon—Granholm was asked in an interview to lay out the Biden administration’s plan to increase domestic energy production. “That is hilarious. Would that I have the magic wand on this,” she said, throwing her head back in laughter. “Here is the Biden plan. I’m here in Glasgow, the Biden plan is to diversify and to make sure that we move in a direction of clean energy where we’re not reliant upon cartels and we’re not reliant upon geopolitical adversaries.”

Four months later—with average gas prices nearly a full dollar higher—Granholm appears to have changed her tune. “We are on a war footing,” she told oil and gas executives at a conference in Houston on Wednesday. “That means you producing more right now, where and if you can. I hope your investors are saying this to you as well. In this moment of crisis, we need more supply.”

“We have to deploy clean technologies as fast as possible—but we’re under no illusion that every American will get an [electric vehicle] or a heat pump tomorrow or next month or next year,” Granholm continued. “It is a transition, and we’re pragmatic about what it means. We know it won’t happen overnight. … Right now, we need oil and gas production to rise to meet current demand.”

Worth Your Time

  • If you’re looking for two stories that pair well together, try George Will’s column on Arizona Gov. Doug Ducey deciding against mounting a Senate campaign and Josh Kraushaar’s latest piece on Sen. Rick Scott’s tenure as chairman of the National Republican Senatorial Committee. “The Floridian has failed to land top candidates in a particularly promising environment for the Republican Party. And he’s now promoting his own 11-point conservative policy manifesto that calls for every American to pay taxes, a position that’s at odds with the interests of the candidates he’s hoping will lead his party to the Senate majority,” Kraushaar writes for National Journal. “Republican strategists are flummoxed that the chairman would clumsily insert himself into the campaign conversation when his main job is to be a team player and do whatever it takes to help Republican candidates running for office. It’s especially awkward that the party committee Scott runs is disavowing any connection to the document, noting it’s strictly coming from Scott’s personal campaign, even as he writes a Wall Street Journal op-ed touting his bravery in taking on the Washington establishment.”

  • In a piece for The Atlantic, Brown University’s Emily Oster calls out the CDC’s “irrational” new pandemic guidance that lets kids in kindergarten and above attend school maskless while kids in pre-K and below have to mask up. ”The under-5 cohort is ineligible for vaccines … but the dropping of mandates for older kids is not typically dependent on vaccination rates or individual vaccination status. In New York, less than half of the 5-to-11 group is vaccinated. An unvaccinated 5-year-old girl can attend school without a mask, but her unvaccinated 3-year-old sister cannot,” she writes. “Although we do not have good evidence on the downsides of masking, and much of the rhetoric is probably overstated, any negative effects are likely to be concentrated in younger children, who are learning to speak and interpret emotional cues. The possible costs of continued mask wearing may be the largest for the very cohort still subject to mandates.”

  • In light of Russia’s recent clampdown on independent media, Jack Shafer’s latest Politico column points out autocratic censorship campaigns aren’t as effective in today’s information environment. “Putin mistakenly thinks it’s 1955 and that media suppression can douse inconvenient information,” he writes. “While he can propagandize from the Kremlin, promising that only he can make Russia safe from an encroaching NATO and the decadent West, he is not the only authority. For almost three decades now, curious Russian people have consumed the international press and learned how manipulative official media can be. Many have traveled to the West, too, and attended college abroad, which has given them the critical perspective that might have been denied to their parents. The internet has provided a window on the world through which Russians can judge their own country. Russia hasn’t become a Western country by any means, but compared to the time before the fall of the wall, it’s become increasingly globalized, both economically and culturally. Putin may be able to pause that integration, but can he reverse it? Doubtful.”

May the Force Be With You

Presented Without Comment

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Also Presented Without Comment

Toeing the Company Line

  • Kori Schake—director of foreign and defense policy at the American Enterprise Institute—joined The Remnant on Wednesday for a conversation with Jonah about the state of the liberal international order. What will the next year hold in store for the conflict and Putin’s leadership? Should Ukraine join NATO? What have been the Biden administration’s biggest foreign policy mistakes?

  • This week’s Capitolism (🔒) unpacks President Biden’s claim that the United States can fight inflation by manufacturing more goods in America. “Global supply chains (aka global value chains or ‘GVCs’) tend to reduce prices, not raise them—especially when compared to wholly nationalized production,” he writes.

  • In Wednesday’s G-File (🔒), Jonah discusses a new Quinnipiac finding that just 55 percent of Americans say they would stay and fight if they were in the Ukrainians’ position. “History is full of stories of improbable heroes and unlikely cowards,” he writes. “Consider that towering pillar of American cinema: Red Dawn. In the movie, you wouldn’t expect C. Thomas Howell to become a one-man Ruskie killing machine. Nor would you necessarily think Jennifer Grey or Lea Thompson would become hard-bitten warriors. People can surprise you.”

  • Natalie Jaresko, Ukraine’s former finance minister, is on the latest episode of the Dispatch Podcast, talking with Sarah and Steve about the history of Ukraine, its people, and what the last two weeks have meant for the country.

Let Us Know

Do you agree with Zycher that the United States’ ban on Russian energy imports is more symbolic than real? If so, are you glad we did it anyway?

Reporting by Declan Garvey (@declanpgarvey), Charlotte Lawson (@lawsonreports), and Steve Hayes (@stephenfhayes).