Britain, the US, and Europe announced tough action today to phase out imports of Russian oil and gas in what is being seen as the biggest shift in energy supplies for generations.
Business Secretary Kwasi Kwarteng said the UK will ban oil and oil-based products by the end of the year, giving businesses and supply chains time to find other sources, including more from the Middle East.
A task force will also be established to help firms find “alternative supplies” before the ban comes into force by 2023, the Cabinet minister pledged.
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Mr. Kwarteng added: “The UK is a significant producer of oil and oil products, plus we hold significant reserves.
“Beyond Russia, the vast majority of our imports come from reliable partners such as the US, Netherlands, and the Gulf.
“We’ll work with them this year to secure further supplies.
“The market has already begun to ostracise Russian oil, with nearly 70% of it currently unable to find a buyer.
“While the UK is not dependent on Russian natural gas, 4% of our supply, I am exploring options to end this altogether.”
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US President Joe Biden said he will ban oil, coal, and gas from Russia, stating: “We will not be part of subsidizing Putin’s war.”
He said the ban would be a “powerful blow” to Putin, but he warned Americans that the sanction would have ripple effects at home, telling them that “defending freedom is going to cost”.
The EU also plans to reduce the continent’s reliance on Russian gas and announced an ambitious target of cutting its demand by two-thirds by the end of the year.
Russian oil supplies account for 8% of overall imports into the UK, while 18% of UK diesel comes from Russia, but Europe takes 40% of its gas from Russia.
Oil prices continued to rise back to $130 a barrel amid expectations that it will go higher.
Ed Miliband, UK Shadow Secretary of State for Climate and Net Zero responding to the government’s announcement that the UK will phase out Russian oil, said: “It is the right decision to ban imports of Russian oil. We need to do everything possible to isolate the Putin regime.
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“This decision reinforces the case for further action to tackle the cost of living crisis at home. Rising energy bills are already a concern for families up and down the country, which is why Labour has proposed a series of practical costed measures, including a windfall tax on oil and gas producers.
“This approach also further underlines the need for a decisive move towards clean energy to improve our resilience as a country and to protect us from rocketing energy prices.”
Russia’s response to the action could be swift and damaging. It may cut off gas supplies to Europe, causing a massive energy crisis.
Data compiled from the Central Bank of Russia shows that the gold and foreign reserves in the country’s war chest increased from $448 billion in 2018 to around $630bn in 2022. This increase roughly translates to a 41% jump over the four years.
However, the Kremlin’s major flaw may have been to hold more than half of these reserves in foreign banks, as the government now cannot access these funds.
Russia still has access to about 13% of its reserves, held in Chinese banks. However, the effects of the restrictions can already be felt on the Russian economy. Following the first attacks on Ukraine, Russians flocked to change their rubles to dollars and euros ahead of the expected western sanctions.
The Russian economy is already in decline, with the central bank increasing its interest rates from 9.5% to 20% on 7 March. The Russian ruble also hit an all-time low on the same day, losing almost 50% of its value since the year began.