God Save the Oil, Part 2: The Underwear Poisoner Strikes Back, but the World Strikes Harder

Jay Ramesh

I have a question for you: What’s huge, hurting people, and misunderstood?

It’s not the IRS. It’s the petroleum industry.

Oil Age: The Meltdown

In an unprecedented move, the Russian stock market has been closed since February 24, and will likely remain closed until at least March 8. The few Russian stocks that have remained open in other countries have lost upwards of 90% of their values, and Russian investors fear that the sheer number of sell orders could potentially tank the entire Russian economy once the market opens. 

For instance, Sberbank, the largest Russian bank which boasted a $500 billion market cap mid-February, lost 99.9% of its value on the London Stock Exchange. Shares collapsed from ~$15 to 1 cent, and the company’s market cap fell to just $200 million. 

As of the time of this writing, crude oil prices have skyrocketed to over $115 per barrel: for perspective, crude oil was $62 per barrel in August 2021. Readers have probably seen the effects of this in the Carolinas, as gas prices have risen to $4/gallon across both states. Russia is the third-largest exporter of petroleum and liquid fuels in the world, and 45% of Europe’s entire natural gas supplies come from Russia- Russia needs clients, and Europe needs heating during these cold months.

$4/gallon for gasoline may just be the tip of the iceberg. Analysts across the world have warned that completely cutting off Russian crude oil could cause crude oil prices to hit $150 per barrel, which would be utterly devastating for economies across the world. Anticipating this, the US and the European Union (EU) are faced with a difficult decision.

If enough countries around the world boycott and sanction Russian energy exports (petroleum, natural gas, etc.), it could bring about the collapse of the already ailing Russian economy: 60% of Russia’s exports come from the energy sector. However, this would also exacerbate the already dangerous supply-chain shortages the world is facing, and there’s no guarantee that Russian President Vladimir Putin (aka the Underwear Poisoner) will call off the invasion even if his entire country’s economy collapses. It would be a high-stakes game of chicken that, in the end, punishes consumers the most. Who will break first- Russia’s economy, or the entire world financial system?

Accordingly, this has driven a wedge into a surprisingly cohesive international effort to condemn Russia’s invasion and severely punish its economy. The EU has already banned seven Russian banks from SWIFT (a global banking system that connects banks all over the world and enables the free flow of money and transactions between world economies), but it has held off on banning Russian banks involved in transactions with the energy sector.

The EU exempted Sberbank and Gazprombank, both of which handle energy export transactions to the EU, from removal from SWIFT. Financial interests and reliance on Russian energy imports were a primary reason why NATO didn’t consolidate around a single diplomatic position with regards to the Ukraine crisis before February 24. Some countries such as Poland were seeking to support Ukraine, while others like Germany and France were on the fence, but even during a period of consolidated international hostility towards the Russian invasion of Ukraine, even Europe isn't immune from a reliance on energy exports.

“Blood Oil”

Many energy companies are now faced with a difficult decision: should they join the world and cripple the Russian economy, or should they buy “Blood Oil” from Ukraine and help financially support the Russian war machine, leading to more civilian deaths and a potential refugee crisis? Buying Russian oil could lead to mass boycotts from consumers, but not doing so could lead to a global oil crisis, the likes of which the world hasn’t seen since the 1970s.

On February 28, it appeared that the British gas giant, Shell, would take the first path after it announced that it was pulling out of $3 billion worth of investments in Russia. Shortly after, the British Petroleum Company (BP) followed suit, withdrawing from a 20% stake in the Russian energy company Rosneft. It appeared that private companies may pave the way for governments to implement sanctions on Russian energy after all.

However, on March 4, Shell bought 100,000 metric tons of crude oil from Russia… at a discounted price. As the EU, US, and UK have avoided sanctioning Russia’s energy industry, the move wasn’t in violation of international sanctions, but it did go against the trend of other firms independently boycotting Russian crude oil. Shell claimed that it was a hard decision to buy Russian oil, and the claim isn’t unwarranted: as previously stated, Russia does indeed represent a huge chunk of global oil supplies. Shell’s dilemma may represent yet another instance of global corporate greed, but it may also represent a sincerely difficult decision made in unprecedented times. 

Regardless, the move raises economic and ethical questions for energy companies and consumers around the world. Is it worth it to buy blood oil that funds an ongoing war for the sake of preventing a potential world economic collapse? Should states open up drilling sites in the Arctic or in wildlife reserves to reduce global dependence on Russia? How much are we willing to pay for gasoline each week before the lives of Russians and Ukrainians stop mattering to us?

Since February 24, Russia has become a Pariah to international corporations: Mastercard and Visa have suspended operations in the country, Apple has announced it will stop selling iPhones in Russia, and even Twitch has stopped paying Russian streamers. As the Russian Ruble tumbles in value, Russia has doubled its interest rate to 20% as investors continue a mass exodus from Russian business. But when it comes to energy and oil, people are starting to draw a line.

Perhaps this crisis has shown the world how dangerous it is to be overly dependent on oil supplies to run their homes, cars, and economies. Perhaps the world will move towards clean energy and away from the fossil fuels that hold Russia and the world in a vice grip.

 Perhaps. 

But then again, when it comes to oil, when have we ever learned our lesson?