Confused? We will guide you.
Most Russian oil is destined for Europe and Asia. But the key here is to think about oil supply globally, rather than the United States specifically. The world of raw materials is highly interconnected and the price of oil is set on a global market. Thus, what happens in one region of the world can affect another.
In 2021, on the other hand, Europe obtained 60% of Russia’s oil exports and China 20%.
But remember, oil is bought and shipped around the world through a global commodity market. So in that sense, it doesn’t matter who is specifically crushed by the loss of Russian oil, because the drop in supply affects those world prices no matter what. And as we know from Econ 101, when there is less supply of an in-demand item, prices go up.
For example, if Europe buys less oil from Russia, it will have to replace it with oil from elsewhere – perhaps from the powerful Organization of the Petroleum Exporting Countries led by Saudi Arabia. This increase in oil demand from OPEC will drive up its crude prices. And guess who else is buying hundreds of millions of barrels of oil from OPEC?
You guessed it: the United States.
Why is there less Russian supply, anyway?
So investors are essentially pricing oil as if supply from Russia is not available at all. And again, less supply = higher prices.
Why can’t other countries pump more?
Guess who is part of OPEC+? Russia. So yes, OPEC+ is not rushing to the rescue. The Saudis made it clear for months, even before the invasion, that the group did not plan to turn on the oil taps anytime soon.
And then, Iraq’s Oil Ministry said its leaders met and agreed that its OPEC+ partners should balance supply and demand to stabilize the market. At this point, who knows.
Why can’t US oil companies increase production, then?
In short, everything is a simple matter of supply and demand. But of course, it’s never really that simple.
– Chris Isidore and Matt Egan of CNN Business contributed reporting.