Sanctions on Russia that Led to an Oil Embargo: Damage in South Korea Must Be Minimized

The United States announced on March 8 that it would immediately suspend imports of oil, natural gas and coal from Russia. Russia responded with measures to suspend exports of raw materials. Russia’s invasion of Ukraine has led to an “energy war” between the great powers, raising concerns about a third oil shock.

U.S. President Joe Biden called the move “another powerful blow to Putin’s war machine,” and stated that “we will not be part of subsidizing Putin’s war.” In a situation where Russia is securing war funds by selling energy, the government intends to damage Russia’s ability to carry out war by cutting off the funding line. Items that are suspended from imports include crude oil, petroleum products, natural gas and coal. Russian products account for about 8% of U.S. imports of crude oil and petroleum products.

This particular sanction was imposed by the United States alone. The U.K. plans to phase out Russian crude oil imports and suspend them later this year. The European Commission has come up with a plan to cut Russian natural gas imports by two-thirds by the end of the year, and to gradually reduce dependence on Russian fossil fuels before 2030 in order to become independent. This plan will be discussed at the European Union summit from March 10-11.

Russia announced retaliatory measures as soon as the U.S. energy embargo was announced. President Vladimir Putin signed a presidential decree prohibiting or limiting the exports and imports of certain raw materials. He ordered the government to create a list of foreign countries to which the measure would be applied within two days and specified that the measure would be effective until Dec. 31 of this year. The Russian government is planning to separately publish a list of raw materials that are prohibited or limited to export or import.

Such sanctions and counter-sanctions between the U.S. and Russia are expected to have a significant impact on the global economy. Russia is the world’s third-largest oil producer and No. 1 natural gas exporter. It is also a major exporter of grains and metals such as aluminum and nickel. Oil prices soared when the U.S. energy embargo was announced. The price of Brent crude oil, which is the standard for crude oil prices, broke through $130 per barrel again on March 9, soaring 66% from $79 at the end of last year. Nickel prices also climbed to all-time highs. The industry has accepted that the energy market is approaching the worst-case scenario.

South Korea, which is highly dependent on foreign energy, is also expected to suffer considerable damage. In the case of Naphtha, a petroleum product, Russian production accounted for 23.4% of Korea’s energy imports last year, taking first place, followed by bituminous coal 16.3% (second), crude oil 6.4% (fourth) and natural gas 6.7%, (sixth). Although this war is an external variable that is beyond our control, the government must do its utmost to minimize damage. According to the results of a recent survey conducted by the Korea International Trade Association, companies are requesting trade insurance, diversification of supply lines, support for logistics costs and prompt provision of information. Consumers should also participate in energy-saving efforts, such as reducing car use and adjusting their thermostats.