Crippling Russia with an oil embargo would send U.S. gas prices soaring. In Europe, it could lead to death

In the U.S., President Joe Biden has so far resisted calls from Democrats and Republicans to ban Russian oil imports, as Russian President Vladimir Putin continues to mount his brutal war on Ukraine. 

Germany and other European nations have signaled similar opposition, with German Economy Minister Robert Habeck telling reporters on Thursday, “I wouldn’t support an embargo on imports of fossil fuels from Russia.”

He added, “I would even speak out against it, because we would threaten the social peace in the republic with that.”

But for the U.S. and Europe, an oil embargo means two completely different things. For the U.S., which sources only 5% of its crude oil and petroleum from Russia, sanctioning Russian fossil fuels would result in extremely high oil prices and worsening inflationary pressures. 

But for countries like Germany, which source half their gas from Russia, “the worst case is that people start dying because they can’t heat their homes,” Adam Pankratz, a professor at the University of British Columbia’s Sauder School of Business, told Fortune. 

“It means freezing and possibly dead Germans,” he said. 

The safe U.S. position

Russia exports 5 million barrels of crude oil a day, representing around 12% of global trade and making it the world’s largest exporter. It’s the world’s third-largest oil producer.

However, around 60% of Russia’s oil exports go to Europe and another 20% to China. The U.S. imports 670,000 barrels of crude oil and petroleum products each day from Russia, according to the U.S. Energy Information Administration, which only accounts for 5% of its crude imports.

But despite the U.S.’s minor reliance on Russian oil, public opposition to the import is mounting. Democrats and Republicans on the Senate Energy Committee floated a bill on Thursday that would end the import of Russian crude oil and liquefied natural gas. West Virginia’s Democratic Sen. Joe Manchin, who is leading the bill, told reporters, “We should stop buying over 600,000 barrels [of Russian oil] a day in America. Can you believe that? No one knew that. No one paid attention to it. And that has to stop.”

Pankratz told Fortune that if there is an embargo of Russian oil, the U.S. won’t be running out of oil. “If it really goes drastic, the U.S. has a strategic petroleum reserve,” he said.

He notes the real concern is if all countries stopped importing oil from Russia, available supply would tighten, and “the price of oil would go through the roof,” which would add inflationary pressure, making heating homes and driving cars more expensive in the West.

Fearing a rise in the price of gas at the pump, White House press secretary Jen Psaki said on CNN on Wednesday that what Biden “does not want to do is topple the global oil markets or the global marketplace, or impact the American people more with higher energy and gas prices.”

Europe’s pain

Europe is facing a different story. 

Although winter is winding down and the need to heat homes won’t be as great, Western European nations are vacillating on sanctioning the country’s oil.

Neither Gazprombank nor Sberbank were on the list of seven institutions Brussels banned from the SWIFT messaging system, as they both act as the main channels for payments for Russian oil and gas. 

Despite understanding the need to end its dependency on Russian fossil fuels, European Union officials also have not considered sanctions on energy because of the damage it would do to the region’s economy.

“For Europe, the situation is much more dramatic,” says Pankratz, who notes that the region “is in such an energy dependent situation on Russia, there is not a lot they can do to drop the hammer.” 

Self-sanctioning

But even if sanctions are not put in place, gas traders are steering clear of Russian oil, despite its being traded at an alluring $18 a barrel discount to Brent.

A number of European refiners, including Finland’s Neste and Sweden’s Preem, have shunned Russian oil and are looking for supplies elsewhere. The FT reported on Wednesday that Russian oil producer Surgutneftegas had failed to sell Urals crude in its March tenders.

According to S&P Global, traders said the public perception of Western firms and a lack of credit stopped them from buying up the assets at an incredibly cheap price. Many do not want to be seen as funding the invasion of Ukraine.

“Russia’s oil has effectively become toxic,” one banker told the FT.

Whether a direct line can be drawn to buying oil from Russia and funding its war in Ukraine is murky, Pankratz notes.

“A direct line is always tough to draw, but it is, in a lot of ways, an energy war—and if Russia couldn’t sell its energy at all, it would be in much more serious trouble than it already is,” he said.