The Biden Administration issued an executive order earlier this month that bans the import of Russian oil, liquefied natural gas, and coal to the United States and prohibits any United States citizen from initiating any new investment in the Russian energy sector, regardless of where that person is located.
This is another punitive step as the United States ramps up its pressure on Russia for Vladimir Putin’s attack on Ukraine.
The Downstream Impacts of the Russian Energy Ban
Record high gas prices have fueled already high inflation and will have significant implications on policy, earnings, and many supply chains for the foreseeable future. According to the International Energy Agency, U.S. imported approximately 700,000 barrels of oil per day from Russia in 2021.
The United Kingdom is gradually detaching itself from Russian energy, and the European Union is cutting gas imports from Russia by two-thirds this year. Although the economic impact from the loss of Russian energy is much more significant for Europe than for the U.S., other supply chain consequences exist.
Understanding Russian Energy Buyers
Data analysis by Interos found over 120 distinct U.S. entities that directly buy from Russian firms in the oil, gas, and consumable fuels sector. Looking further into the supply chain, the number of relationships grows to over 33,000 U.S. entities for Tier 2 suppliers and 157,000 for those at Tier 3.
Most of the direct buyers of Russian energy are in the same or similar industries, but, notably, some are in sectors as diverse as software, retail, and food products.
The relatively high numbers of U.S. buyers connected to Russian energy suppliers beyond tier 1 are significant considering how little the country directly depends on Russian energy.
Even for those companies in which a Tier 1 supplier is not specifically dependent on Russian energy or impacted by the import ban directly might experience disruption further down the line.
This could result from indirect relationships and dependencies that they may not be aware of. It also underscores the complexity and interconnectedness of global supply chains and the importance of having tools to identify and evaluate a company’s broader risk exposure.
Impacts Felt in the United States
Although the US does not import enough Russian energy to significantly impact the Russian oil industry on its own, the move is still impacting energy prices and further pressuring other countries. Indeed, many energy companies are severing relationships beyond what the EO requires.
Although Europe is indeed more dependent, oil is a global commodity. It is traded almost exclusively in US dollars and these changes will affect the entire supply chain, both in terms of prices paid and further delivery delays. This will have a far-reaching impact on the energy and marine sectors.
Stakeholders with connections to the energy and shipping sector will be immediately impacted and are required to examine their operations, supply contracts and charter parties to determine if the EO applies to them
We expect even more restrictions to be imposed as the invasion sadly continues.
For more information on the supply chain impact on the crisis in Ukraine, please visit our Ukraine Crisis Resource Center.
