Yves here. The headline should not come as any surprise. The West is determined to harm itself by harming Russia. As you know, the US has banned Russian oil. While Europe has not followed and the financial sanctions were designed to exempt commodities payments, there are de facto bans that go beyond the official ones, like “Russian” tankers not being allowed into ports (note that Russian-owned tankers are not flagged in Russia for insurance reasons over my pay grade, but they usually have Russian names so it’s not hard to pick them out, plus I assume port operators typically know who is who, ship-wise). Some Russian oil buys are still being made but they appear to be spotty.

More important, the press and pols in US and Europe have whipped the public into such a Russia-hating frenzy that it seems impossible for them to back down on sanctions even when the war is over. That means no (for the US) or less (for the EU) Russian oil. This is a problem because as we have explained, oil is not as fungible as you have been led to believe. Diesel and home heating oil require either medium heavy oil like Russia’s, or heavy sour like Iran’s and Venezuela’s. Shale oil and gas are very light and no substitute. Ditto the gas from Canada’s tar sands is also very light; reader are arguing over its bitumen, which in theory could help but that was never intended to be transported to the US.

I was surprised to see oil prices drop below $100 this week, because the high oil prices are pretty certain to remain baked in. The only factor that could provide a breather over the next couple of months is if China’s Covid lockdown continues and expands to include more provinces. Factory shutdowns and greatly reduced travel in China would cut fuel demand near term. But that would produce additional supply chain issues in the West and price increases in some sectors.

Note that IEA forecasts provide for high energy prices denting economic activity, but not enough to offset the loss of Russian supply.

The assumption in the West is that they can break Russia’s economy. The wee problem is that the US has an economic glass jaw. Typical workers have suffered falling real incomes due to Covid-induced inflation, both supply chain shocks and the oil production whipsaw (producers not ramping up production as quickly as energy demand rebounded). Even if China manages to give the US a mini-breather on oil prices, it’s not hard to imagine that they will be over $6 a gallon in low income states, and over $7 in California by the summer. And it is entirely conceivable they will be over $7 all over the US by fall.

Even in the runup this month, we were already hearing of distress, like low wage US workers not being able to justify turning up after factoring in the higher commuting costs, and fishing fleets in Europe idling because the fuel costs were too high.

To put it more tersely: I don’t think the US economy or the Democrats can stand the prospect of $7 a gallon gas, and that now looks like an entirely plausible future. And I don’t see how Biden swallow crows to relax some of the energy sanctions so as to save his party’s hide.

For a contrast, we are embedding Putin’s recent speech of March 16 at the end of this post. Its latter half discusses economic conditions and relief plans. Of course Putin depicts everything as going reasonably well given the difficult givens, most importantly the claim that the banking system is running fine and consumer production is being prioritized.

Putin has some uncharacteristically sharp remarks about the Russian version of Davos men. I wonder if some private discussions failed?

I want to be as direct as possible: hostile geopolitical designs lie behind the hypocritical talk and recent actions by the so-called collective West…

Yes, of course, they will back the so-called fifth column, national traitors – those who make money here in our country but live over there, and “live” not in the geographical sense of the word but in their minds, in their servile mentality.

I do not in the least condemn those who have villas in Miami or the French Riviera, who cannot make do without foie gras, oysters or gender freedom as they call it. That is not the problem, not at all. The problem, again, is that many of these people are, essentially, over there in their minds and not here with our people and with Russia. In their opinion – in their opinion! – it is a sign of belonging to the superior caste, the superior race. People like this would sell their own mothers just to be allowed to sit on the entry bench of the superior caste. They want to be just like them and imitate them in everything. But they forget or just completely fail to see that even if this so-called superior caste needs them, it needs them as expendable raw material to inflict maximum damage on our people.

The collective West is trying to divide our society using, to its own advantage, combat losses and the socioeconomic consequences of the sanctions, and to provoke civil unrest in Russia and use its fifth column in an attempt to achieve this goal. As I mentioned earlier, their goal is to destroy Russia.

But any nation, and even more so the Russian people, will always be able to distinguish true patriots from scum and traitors and will simply spit them out like an insect in their mouth, spit them onto the pavement. I am convinced that a natural and necessary self-detoxification of society like this would strengthen our country, our solidarity and cohesion and our readiness to respond to any challenge.

The so-called collective West and its fifth column are accustomed to measuring everything and everyone by their own standards. They believe that everything is for sale and everything can be bought, and therefore they think we will break down and back off. But they do not know our history and our people well enough.

This sounds an awful lot like guillotine blades being sharpened, particularly because Putin is normally very measured. But this is a mirror image of the West’s “You are with us or are against us” posture applied to his own super rich.

However, if you read the balance of the speech, Putin lays out a lot of economic programs, which if they can be implemented quickly enough, would indeed blunt a lot of pain, particularly to lower-income cohorts. We’ll see soon enough. But if Putin can deliver well enough on this program, its ameliorating impact plus Russians seeing Ukraine as an existential fight has the potential to give them more staying power than the West. We’ll see in due course.

Back to the main event of oil price outlook.

By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice