Russia’s invasion of Ukraine is having big, and potentially long-lasting impacts on the global supplies and prices of food and energy. Severe sanctions on Russia aim to isolate the country and create a deep recession there, but the economic fallout will also be felt by people around the world.
The Financial Impact of The War
Oil and gas prices have risen dramatically, with both main oil benchmarks trading at or above $110 today, representing a 15% increase over last week.
Energy exports are now exempt from Russian restrictions. Europe is looking for alternatives, with reports indicating that refiners should avoid importing Russian oil. At the same time, Russia is still able to sell the majority of its products by offering discounts in the range of $15 to $20.
Clearly, the war is putting more strain on the system. According to some analysts, the danger of supply disruption has not yet been fully priced in, and we could be in for another upward run.
U.S. Ban on Russian Oil Imports
Strong economic recovery coupled with low investment in oil production were hugely exacerbated by the Russian invasion of Ukraine. This sent the oil price to stratospheric levels and this is being passed over to consumers at the pump.
There are some mechanisms that can be unlocked in the short term if the US administration wants to cut gas costs. These include lowering or eliminating the 18.4 and 24.4 cents per gallon federal taxes on gasoline and diesel, respectively. It could also collaborate with state governments to achieve the same results. Because state taxes average 30.63 and 32.29 cents per gallon, aggregate gains of $0.5 per gallon are possible.
The Rise In Energy Prices
Again, it’s difficult to forecast which way the situation and markets will turn, but it appears like we’re in for a time of high energy prices, fueled by war and accompanied by tight market fundamentals.
Consumers are paying higher rates at the pump, in their gas, heating, and electricity bills. High energy prices also raise the cost of practically all products and services, raising inflation forecasts further.