US Clearly Has No Substitute Plan After Banning Russian Oil, May Face Recession, Investor Says

WASHINGTON (Sputnik) - The Biden administration does not have an alternative plan to secure oil supplies after it banned Russian oil and energy imports and may quickly face a recession in the United States, Kyle Shostak, director of the financial services firm Navigator Principal Investors, told Sputnik.

“From a domestic point of view, it is clear that the administration doesn't have a substitute plan to lean on,” Shostak said. “The alternatives will be to go to Saudi Arabia and Venezuela and effectively subside these political regimes that will use every chance to negotiate their prices from a position of power.”

Shostak noted that the Organization of Petroleum Exporting Countries (OPEC) countries has worked hard to get agreement for oil at the current prices so a potential increase in output as a concession to the United States is far from certain.

“Meanwhile, the price per barrel can go to $160 and above. The United States may quickly find itself in a recession, so the question is how long and how far the average US consumer and the US economy can bear the brunt,” he said.

Shostak said the decision US President Joe Biden took on banning Russian oil imports - at the level of 672,000 barrels a day - was a difficult one amid a charged political atmosphere.

“Clearly, this administration had no intention of doing so, as a week before the US Energy Secretary has specifically argued that such a ban will be a big negative for the US economy. However, the president had no choice as he was forced into this by the Congress.”

Shostak continued to say that the brutal reality of the modern-day energy market lies in the fact of being  deeply interdependent.

“There will be a buyer for the ready-to-be-delivered product that everyone needs,” he said. “The Russian suppliers will re-route tankers of the US-bound volume, albeit not without some initial logistic challenges, to the Asian markets, starving for oil even before the conflict had started, where the end-takers will gladly buy it. The current energy prices are well above what the Russian budget was planning on.”

Shostak said he believes the net effect of the new situation on the Russian economy will probably be very small.

“The share of Russian oil import to the US is overall small (7-8%) and was declining anyway. No natural gas is being purchased from Russia,” he said. “Even if substantially discounted, it will still sell at the levels, sufficient to satisfy the Russian state budget, balanced at $69 per barrel in 2021, and make ends meet. Iran was able to do the same for years and survived, China and others countries are buying the Iranian output daily.”

Shestak underscored that the European countries are most likely to keep buying Russian oil.

“Worth reminding that while the war is in its worst stage, Russian gas keeps flowing to European offtakers through the Ukrainian energy system,” he said. “Europe does not seem to be rushing to cut Russian supplies. All plans to replace them are facing enormous logistical, economic and political challenges, at best solved long-term, and should be viewed broadly as the shift to green energy.”

Shestak also said uranium has been specifically excluded from the US ban as the United States has a significant uranium dependency on Russia, which provides for over 20% of its domestic demand.”

The price of gasoline in the United States has broken another record in the past two days, according to data published by the American Automotive Association (AAA) on Wednesday.

The average price of gasoline in the United States increased by eight cents overnight, from $4.17 to $4.25 after the US government announced a ban on Russian energy imports a day earlier.

The United States and its allies have imposed comprehensive sanctions against Russia in response to its special military operation in Ukraine. The sanctions have slowed but not entirely eliminated the ability of Russian exporters of oil and gas to transact deals that require world financial networks and especially US dollars.

Russia provides 10% of the world's crude oil needs and 40% of Europe's gas requirements. The United States, however, buys a limited amount of Russian oil, taking  20% of the 10.5 million barrels per day exported by Russia in 2021.