Russia-Ukraine crisis: What would a US ban on Russian oil mean for the world?

The possibility that the United States might ban Russian oil imports has triggered a surge in Brent crude to almost $140 a barrel, its highest level since 2008.

Russia is the world's top exporter of crude and oil products combined, at around 7 million barrels per day (bpd ) or 7% of global supply. Such a ban would be unprecedented, turbocharging already sky-high prices and risking inflationary shock.

Here are some of the likely consequences of a ban:

RECORD PRICES

Western governments have not directly sanctioned Russia's energy sector but some customers are already shunning its oil to avoid becoming entangled in legal troubles later.

JP Morgan predicts oil could hit a record $185 a barrel by the end of 2022 if disruption to Russian exports lasts that long, although along with most analysts polled by Reuters the bank expects a yearly average price below $100.

The last time oil prices were above $100 was in 2014 and levels reached on Monday were not far shy of a peak of more than $147 hit in July 2008. That is a steep climb from two years ago, when a coronavirus-driven demand slump saw a barrel of West Texas crude at below $0 as sellers had to pay to get rid of it.

"A prolonged war which causes widespread disruption to commodity supplies could see Brent moving above the $150 a barrel mark," Giovanni Staunovo, commodity analyst at UBS, said.

INFLATIONARY SHOCK

With natural gas prices hitting all-time highs, soaring energy costs are expected to push inflation above 7% on both sides of the Atlantic in the coming months and eat deep into households’ purchasing power.

As a rule of thumb, every 10% rise in the oil price in euro terms increases euro zone inflation by 0.1 to 0.2 percentage point. Since Jan 1, Brent crude is up around 80% in euros. In the U.S., every $10 per barrel rise in oil prices increases inflation by 0.2 percentage point.

In addition to being a major supplier of oil and gas, Russia is also the world's largest grains and fertilisers exporter and a top producer of palladium, nickel, coal and steel. The bid to exclude its economy from the trading system will hit a wide range of industries and add to global food security fears.

HIT TO GROWTH

A ban on Russian oil would further slow the nascent global recovery from the coronavirus pandemic.

Preliminary calculations by the European Central Bank (ECB) suggest that war could cut euro zone growth by 0.3 to 0.4 percentage points this year in a baseline scenario and 1 percentage point in case of a severe shock.

In the coming months, there is a high risk of stagflation, or little to minimal growth coupled with high inflation. However, further, euro zone growth is likely to remain robust, even if commodity prices prove a drag.

In the US, the Fed estimates that every $10 per barrel rise in oil prices cuts growth by 0.1 percentage point, though private forecasters see a more muted impact.

In Russia, the damage is likely to be large and immediate. JPMorgan estimates that its economy will contract by 12.5% from peak to trough.

CENTRAL BANK IMPACT

For the US Federal Reserve, the inflationary impact has already proved too great and its Chair Jerome Powell has said that interest rates need to rise this month, piling pressure on borrowers. read more

For the ECB, the urgency of policy action is less acute as the labour market still enjoys spare capacity and there is little home-grown inflation.

"No one can seriously expect the ECB to start normalising monetary policy at such a moment of high uncertainty," ING economist Carsten Brzeski said.

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