March 17, 2022
As the world watches the horrors of the full-scale invasion of Ukraine by Russia, a bipartisan group of Washington pols is exploring the idea of increased sanctions on Russian energy. While I agree this strategic tool is necessary to curb Putin, we must apply them carefully as they may cut both ways. It is essential to weigh all the effects as we move forward with sanctions because multiple energy sources - natural gas, coal, oil, uranium, and enrichment services, have different market dynamics and pressure points.
Energy exports are Russia's primary source of state revenue, and they depend on them for political power in Europe. Equally, Europe depends on Russia to supply its heat, power, and transportation energy. In 2019, Russia gave 41% of the EU's natural gas and 27% of its oil. This relationship is why Russia has run roughshod for the past decades. America, however, only receives 8% of its oil and none of its natural gas from Russia, so cutting off this revenue source can send a clear political message.
We must be honest about the cost. When we disrupt supply, it will spike up the prices of globally traded energy commodities. That will be a problem for Illinois' businesses, farmers, and hard-working families. These higher energy prices will benefit Russia, which can sell on the global market. Be reminded that China is a significant customer of Russian natural gas and the largest importer of Russian oil. These two countries have supposedly signed a contract for a whopping 100 million tons of Russian coal over the next few years.
Europe has to step up. It must get a grip on its energy security and fix its energy and climate policies that have needlessly rejected proven technologies, like fracking. Europe has also taxed or eliminated coal, natural gas, oil, and nuclear energy. Reducing domestic production of usable energy while subsidizing irregular resources has opened Europe to increases in energy prices and greater risk to their energy markets and political independence.
The increased demand for energy worldwide will not end soon. An intelligent approach would be to couple the energy sanctions with policies focused on increasing energy production in America and abroad, increasing supply. If we flood the market with reliable and affordable energy, this will weaken the Russian energy revenue source.
Congress should pass legislation to waive the Jones Act to allow ships flagged by NATO allies to help provide energy between U.S. ports. They should also take additional actions to end regulations that increase the cost of consumption, delivery, exploration, financing, and production of conventional energy. A policy to hold immediate lease sales on federal lands and waters for coal, natural gas, oil, and critical minerals should be coupled with an American ban on Russian petroleum products and crude oil imports.
Even if these policy reforms don't have an immediate impact on supply, they will send an important political message to Putin and the energy markets for investors to finance energy exploration and production here at home.