US Sanctions on Russia, Anti-Oil Policy Give Competitive Edge to China: Economist

A customer prepares to pump gas into her car at a Chevron gas station in San Rafael, Calif., on May 20, 2022. Justin Sullivan/Getty Images

Throttling the oil industry while cutting off Russian oil is putting American businesses at a serious disadvantage to those that now buy Russian oil and gas at a discount, namely China and also India, according to an expert on environmental and energy policy.

Worse yet, this situation appears to be baked into the geopolitical cake for the foreseeable future.

After Russia invaded Ukraine earlier this year, Western nations tried to punish Russia with a slew of economic sanctions, including by cutting purchases of Russian oil and gas. That made Russia “a distressed seller” forced to accept penalty prices, noted Ross McKitrick, professor of economics at the University of Guelph in Ontario.

“They’re now shipping much more of their fossil energy to China and India, who are willing still to deal with Russia,” he told The Epoch Times.

Russian oil now sells at a more than 30 percent discount, by some estimates.

Meanwhile, Western governments have throttled their own investment in the oil and gas industry in a quest to “decarbonize” their economies, leading to a tight supply and a market unable to deal with rising demand.

“We’re entering a phase where we will have structurally very high energy prices for years to come,” McKitrick said.

“China and India are buying energy at a deep discount, so they will have a structural cost advantage, and I think you’ll see that begins to affect trading patterns, manufacturing costs, energy-intensive production costs in the years ahead, to our detriment—entirely avoidable, too.”

America’s average gas price has been around or above $5 a gallon for weeks and diesel has already crossed the $6 barrier in many areas.

The economic impact is far-reaching because energy is “very fundamental,” and when its price goes up, it makes it “more costly to do everything,” McKitrick said.

Some economists now see fuel prices as the dominant factor in inflation, which reached 8.6 percent in May.

Amid an already tight labor market, tightening credit, and margins eaten away by inflation, another competitive disadvantage is the last thing American businesses need.

A U.S. small business optimism survey recently recorded its lowest-ever reading in its 48-year history.

“Small business owners remain very pessimistic about the second half of the year as supply chain disruptions, inflation, and the labor shortage are not easing,” said Bill Dunkelberg, chief economist at the National Federation of Independent Business, a trade group that runs the survey, in a June 14 release.

There are no longer any easy solutions to the problem as the Biden administration has made a series of policy mistakes that have led to this point, an oil investment expert previously told The Epoch Times.

It’s not just the domestic oil production that’s now lacking, but also the refinery capacity to process it.

“No one has built a new oil refinery in the U.S. for decades. Nobody’s willing to invest in expanding refinery capacity because the outlook from everything that the government has said is you won’t get the approvals,” McKitrick said, noting that the same problem exists in Canada, where “companies have wasted billions of dollars just trying to get pipelines built, and at the end of it they can’t because environmental policy makes it impossible.”

The government would need to not just take its boot off the oil industry’s neck, but actually give the industry guarantees that new projects would be expeditiously advanced through the regulatory hurdles.

“This would take a massive policy shift on the part of the government,” he said.