A new presidential executive order banning imports of Russian oil, liquefied natural gas and coal will raise costs for the first two fuel sources and could have repercussions on the U.S. economy, but administration officials say the halt is necessary to intensify the squeeze on Vladimir Putin as his military continues to devastate Ukraine.
“This is a step that we’re taking to inflict further pain on Putin," President Joe Biden said in March 8 remarks announcing the directive. “But there will be costs as well here in the United States.”
Those costs will also be felt in the construction industry, officials from industry groups say—in the near-term with higher costs for fueling construction fleets, and in longer-term effects that could include a slowdown in the sector’s fragile recovery.
What the Executive Order Does
The order will ban new shipments of crude oil, certain petroleum products, liquefied natural gas and coal. However, there will be a 45-day “wind-down” period for deliveries of existing purchases already contracted for, a senior administration official said during a press call, The order also bans new U.S. investments in Russia’s energy sector, and prohibits American citizens from financing or supporting foreign companies that are making investments to produce energy in Russia.
The U.S. imported nearly 700,000 barrels per day or crude oil and refined petroleum products from Russia last year, bringing billions of dollars in revenue to Russia. But according to White House officials, in 2021, the percentage of the total supply of oil and gas in the U.S. coming from Russia was relatively small—about 10%.
To reduce the ban’s potential impact on gas prices in the U.S., the administration plans to release 60 million barrels of crude oil from the Strategic Petroleum Reserve, with the U.S. committing to half that amount through an emergency sale.
GOP senators, many of whom support legislation now in Congress calling for a Russian oil and gas import ban, scoffed at using the reserve release to effectively reduce higher gas and oil prices in the U.S.
In a March 2 letter, Republican members of the Senate Energy and Natural Resources Committee outlined their strategies to strengthen domestic production in the U.S., which include expediting more LNG export terminals, bringing the controversial Keystone Pipeline project back to life, and increasing oil and gas lease sales on federal lands.
“The President must end his war on American energy … We have energy at home, and we must use it,” Sen. John Barrasso (R-WY), ranking member of the energy committee, said in a statement.
But Democratic-leaning groups, including environmental advocates, call for more reliance on cleaner sources and swift action to carve out and approve the tax incentives for solar, wind, and other renewable energy projects, as well as for carbon capture and sequestration and hydrogen projects, in the currently stalled Build Back Better bill.
“The only real solution to high, unreliable energy costs is investing in clean, renewable energy and technologies. Now is the time for transformative investments in clean energy, jobs, and justice,” Gene Karpinski, president of the League of Conservation voters, said in a statement.
Construction Impacts Seen
According to Associated Builders and Contractors’ chief economist Anirban Basu, contractors will not only feel the pinch in fueling trucks and equipment fleets, but firms in fixed-price contracts will also have to “squeeze margins.”
Additionally, as commodity prices for standard construction materials such as steel, aluminum, copper and other metals have risen as a direct result of the conflict in Ukraine, the cost of doing business could increase across the board, he says.
These increases, coupled with the rise in construction services costs due to pandemic-related materials and labor shortages, could “further induce some owners to either postpone or forgo” construction projects. “That will soften the construction recovery during the weeks and perhaps months ahead,” Basu adds.
Many construction materials, such as ready-mix concrete, require a lot of energy to manufacture, says Associated General Contractors chief economist Ken Simonson. “Contractors are vulnerable to further price increases as the various layers of the production chain to try to pass on their higher costs.”
The higher prices will provide some incentives for energy-related investments, Simonson says, in more long-term projects like LNG export facilities and CCUS projects, as well as in onshore drilling and in electrical vehicles. “But it will take a while to see what happens to global oil and natural gas prices and supply,” he says. “The war and countermeasures are likely to depress economic activity, especially in Europe, and dampen demand for oil and natural gas.”