Russia could kickstart another oil price war as fresh sanctions loom

Russia’s President Vladimir Putin is starting to feel the heat of new U.S. sanctions, as Washington is putting some additional bite into its confrontation with Moscow. At the same time, new sanctions are looming on the horizon, looking at the tensions at the Russian-Ukrainian border.

US President Joe Biden, however, seems not to be satisfied at all with the effects of current sanctions on Russia. New, harsher measures are already being planned.

Putin’s reactions are straightforward, threatening asymmetric responses to any Western pressure or military interference in the coming months.  Moscow doesn’t seem to be impressed by the threat of new sanctions.  But this soft Russian approach so far could change very quickly, as Putin’s State of the Union address issues asymmetric reactions on all levels if so-called “red-lines” are crossed. 

Will Russia retaliate by blocking oil and gas supplies to Europe and or the U.S. Increased energy supply dependency of the EU and the US increases Moscow’s geopolitical leverage? This situation has divided the leading European powers. Germany, for example, is hinting at opening up to Moscow, while France and the UK are taking the opposite approach. 

Moscow could also decide to push down prices in order to hurt international oil and gas companies, and independent US shale companies in specific. By taking on the U.S. oil industry, Biden’s economic recovery could be dealt some serious damage.

Another oil price war could destabilize the entire U.S. shale patch, which is still recovering from last year’s oil price implosion. During 2020 Russia has grown to be the third-largest oil supplier to the United States, overtaking even Saudi Arabia.

An aggressive move by Moscow doesn’t necessarily have to be at the expense of others in the OPEC+ alliance. In fact, other OPEC members could actually benefit from a direct assault on US oil and gas export markets. Asian economies such as China or India will not be unhappy with lower oil prices, and Beijing even could be a supporter as it will hurt the US at a time that Washington is expanding its sphere of influence in the South China Sea.

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