What is the impact of the War in Ukraine-on our everyday lives?
This month’s Civic-Scroll feature focuses on the ways in which the allied sanctions on Russia will impact our daily lives. We will also touch on the ways in which the war will impact the global environment and marketplace as well.
The War in Ukraine is causing significant global financial pressures in addition to those lingering economic issues that developed as a result of Covid, inflation, supply chain slowdowns and worker shortages in specific service sectors of the economy, such as travel and leisure.
I. OIL and GAS
Domestically, as a result of …(what actually?)… gas prices have been hitting record highs. They have been over $7.00 a gallon at their highest in California and over $6.00 a gallon in other Western States. In New Jersey, where we still do NOT pump our own gas, the price of gas at the pumps has varied from $4.60 - $4.09 in recent weeks. According to one AAA estimate, given the rise in oil prices, an average family might expect to spend an additional $2000. a year if prices average $4.33 cents much longer. In early March, the President announced that a consortia of countries agreed to release 60 million barrels of crude oil from their combined reserves; half will be contributed from the United States. According to President Biden, "America will lead that effort, releasing 30 million barrels of our own Strategic Petroleum Reserve. And we stand ready to do more if necessary, united with our Allies." Nearly a month later, the price of gas at the pumps is lower by only ten cents. According to oil analyst Ed Hirs, the significance of the release of oil reserves, is primarily political as the move hopes to send a unified message to the international global energy market. Meanwhile, Ian Lange agrees that the move is about politics. "I’d say the point is largely much more political in terms of showing that there is, you know, national response to these issues that we are trying to deal with...with the policy levers we have," Lange said. The International Energy Agency said they hoped their announcement would 'send a unified and strong message to global oil markets.'
Just why are gas prices so high? I mean I can understand why they might be high and continue to be in Europe as a result of the many European countries’ boycott of Russian oil. But why are prices so high in America right now?
According to oil experts, there are three primary reasons why gas prices are so high…
Post pandemic demand for gas
When the pandemic first hit the US in 2020, demand for gas plummeted. Again according to the AAA, the typical driver cut their driving in half. As a result, gas prices dropped to an average of $1.94 per gallon.
Cuts to oil production
During this period, both OPEC and Russia began to cut their production to all time lows of approximately 10 million barrels. This is approximately 10% of the global supply. As the economy recovered and people resumed driving and to work more regularly, demand recovered and gas prices began to climb, reaching an average $2.82 a barrel by March 2021. At this time however, OPEC in particular, was slow to ramp up their production. Evan as we neared pre Covid level oil consumption, production was still lagging and continued lagging until July 2021. Producers still are still behind the curve according to De Haan.
US Sanctions on Russia impact the global oil market
Finally, as supply was catching up with demand in early 2022, Russia’s sudden war in Ukraine caused a rapid 20% plus spike in oil and gas prices in a few short weeks. Crude oil prices rose to $3.31 ($109.33 a barrel) and highly refined crude oil to $3.34 ($112.67 a barrel).
Still one might ask, if the US imports less that 10% of its oil and gas from Russia, why are the prices rising so much in the United States? Analyst Dr. Hahn suggests that, “…even though we don’t import a lot, somebody else does and we are making it difficult for Russian oil to flow to the global market and prices are reacting to that. “
According to CBS news, Republican lawmakers have been eager to blame higher gas prices on President Biden by pointing out his 2021 administration’s cancellation of the Keystone XL pipeline, and his executive order to pause oil and gas drilling on federal land in also in 2021. Oil experts point out however, that the Untied States is producing more oil now than it was in 2020, prior to Mr. Biden’s inauguration. Oil and gas drilling has increased under Biden, however supply chain issues and uncertainty about plans for shifting away from fossil fuels may function as disincentives to boost production according to Mr. De Haan.
Inflation and the price at the pumps will accelerate in March and April as Russia-Ukraine impacts on prices will be even greater according to Bill Adams, chief economic for Commerce Bank. According to Patrick De Haan, if prices per barrel of oil can return to below $100.00, consumers may then see prices falling at the pump as gas stations improve their profit margins.
II. Multinational and Corporate
As a result of the War in Ukraine, corporate and multinational earnings and profits will be impacted. This week the New York Times published an opinion piece by Yale management professors, Jeffrey Sonnenfeld and Steven Tian on the status of US and multinational companies remaining and/or suspending their businesses within Russia. According to Sonnenfeld and Tian, 253 companies including, Delta, ebay, and Salesforce, are leaving Russia. 248 companies, including, UPS, Visa, American Express and Starbucks, are suspending their corporate operations in the country. 96 companies are halting their investments. Among these are Siemens, Unilever, Abbott and P&G. The professors also point out that at least “At least 162 companies have not announced substantial voluntary changes to either their operations or their investments in the country.” These include Alibaba, International Paper and. Koch Industries. Sonnenfeld and Tian also say that..,”Although some of the companies in the latter group have contributed to human rights causes and some have donated to international humanitarian organizations or announced vague re-evaluations of operations in Russia, they have not taken any concrete measures to suspend or reduce their business there, beyond the bare minimum legally required by international sanctions. Others haven’t addressed the war at all.” See the article for further information in these corporate moves.
III. Global
The rise in gas prices and the departure of multinationals in Russia are not the only impact our involvement in the war is having. In particular, many of those countries which have decided to cease importing oil from Russia, are also reeling from scarcity of the commodity and rising gas and oil prices as they cobble together substitutes for Russian oil. Other commodity cuts, of items such as nickel and grain will also be difficult to replace in the global marketplace as well. For example, Morocco warned last week that there is going to be a severe shortage of grain in many countries as grain production is halted within Russia and Ukraine leading to dangerous levels of food insecurity in the near future.
Needless to say, the humanitarian and economic impacts of the greatest refugee crisis in Europe since World War II will be staggering for many countries in the region and is yet to be totally determined.
Germany has committed also for the first time since WWII to increase defense spending as well as made an aggressive commitment to free itself of Russian oil and gas.
The commitment to NATO and to protecting democracy has been strengthened in most of Europe as a result of Russia’s unprovoked invasion of Ukraine. However, we are also witnessing the rising tide of illiberalism and even outright support for Russia in such countries as Belarus, Hungary, and a conservative backlash in election polls in France. Even in the United States, the isolationist and Pro-Trump NATO agenda were bolstered this week, when 63 House republicans voted “no” in a resolution expressing support for NATO and for reinforcing its commitment to democratic principles. It is worth noting too, that there was a substantial pro Russian demonstration of thousands in Berlin just last week.
In coming months, as the war continues, we can’t help but question the continued resolve of the anti-Russian movement or pro-Ukrainian, pro-democracy movements to survive. As time passes, inflation and the prices of oil and other commodities rise, the unity and willingness of the European and United States citizens and governments will be tested. I am hoping that we will pass those tests and will remain in the pro Ukraine and pro democracy camps.
April 9, 2022
Suzanne Rosenberg