After Russia invaded Ukraine on February 24, prices of various goods around the world soared as many countries banned Russian imports. In particular, fuel prices have skyrocketed due to Europe’s reliance on Russian energy products. In response to high fuel prices, governments around the world have been tapping into emergency energy reserves and looking towards energy alternatives.
Almost immediately after Russia declared war on Ukraine, many countries, including the United States, imposed economic sanctions on Russia. While the United States has easily managed to put a ban on Russian energy products, the situation is more difficult for European countries. “Most European countries are still buying Russian oil but are looking to stop,” says Franklin history and economics teacher David Marsh. Germany, for example, has a history of connections with Russia, and relies on them for over a third of their oil and half of their natural gas, according to the New York Times. Because of their reliance on Russian oil, many countries have been reluctant to restrict it. Ukrainian President Volodymyr Zelenskyy has condemned Europe for not taking action against Russia in this regard. Despite action from many countries, Bloomberg projects Russia to still make over $300 billion in energy sales this year. Additionally, countries who are more aligned with Russia, such as India, have been purchasing Russian oil at an increased rate, according to BBC.
While the United States relies only slightly on Russian oil, prices have still risen after Russia’s invasion. Between February and March alone, the Consumer Price Index of the Bureau of Labor Statistics reported an 18 percent increase in gas prices. While the global supply of oil is more limited, energy companies are also to blame for high prices. “Oil companies are always fast to raise prices and slow to drop them,” says Marsh. Fuel prices have skyrocketed all over the country, and the government has begun to take action to bring prices back down. The Biden Administration has announced the largest ever release of oil from the emergency supply stored in the US Strategic Petroleum Reserve. According to a White House memo, since the beginning of April, the US has been releasing 1 million barrels per day, a total of 180 million barrels over the next six months. Additionally, the US plans to allow fuel with 15% ethanol to continue being sold in the summer. Ethanol is a cheaper oil alternative produced from corn and other crops, and concentrations as high as 15% are normally reserved for winter months because burning ethanol in warmer weather contributes to smog. While these strategies will help with energy costs in the short term, governments around the world are also searching for longer term solutions. For example, despite the dangers shown by the Russian occupation of Chernobyl, many European countries have renewed their interest in nuclear power.
While governments around the world have been slow to act on climate change, the sudden increases in oil prices have led to much more thought towards renewable energy. “Governments of the world are seeing the Russian war as a bigger wake up call than climate change itself,” says Marsh. “It is more immediate than the greater existential crisis of climate change.” With high gas prices, more renewable options are starting to look much more attractive, especially to governments around the world. The shift to renewable energy and transportation has been slowed by the reluctance to make expensive changes to the economy. But Marsh hopes that “maybe with higher fuel prices we might finally be reaching that tipping point.”
Beyond fuel prices, all other areas of the economy are experiencing inflation. Ukraine and Russia are large exporters of wheat, corn, soybeans, and more. While the United States isn’t as directly affected by food supply disruptions, the shortage has led to global increase in the prices of commodities. Poorer countries are feeling the effects especially strongly. In Sudan, for example, the New York Times reported bread prices doubling due to the wheat shortage. Many poor countries are still recovering from the economic impacts of the pandemic, and more economic turmoil is the last thing they need.
Additionally, many industries are experiencing even more supply chain disruptions. Cars have already been extremely hard to buy due to pandemic-related electronics shortages. Now, companies such as Volkswagen have had to close assembly lines that had been relying on Ukrainian-manufactured parts, according to the Wall Street Journal. While shipping costs have increased alongside fuel prices, moving manufacturing infrastructure locally requires a much larger upfront cost. For example, according to the New York Times, the development of two new Intel factories in Ohio will cost the company $20 billion.
Many companies have already slowly begun to shift their production locally, an effort initiated in part by the Trump Administration’s trade war with China. Political tensions between China and the United States are heightened by the Russia-Ukraine war, but further conflict is unlikely at this time. Although Putin and Xi Jingping met to form an agreement between China and Russia in February, Marsh believes China will probably not end up directly aiding Russia. China needs strong relations with consumer countries like the US to maintain its economy. For this reason, China is unlikely to take more of a side in the war. While the Chinese government likely wishes to put Taiwan under direct control in a similar manner to Ukraine, “if China was going to give more direct support to Russia they probably would have done so by now,” Marsh says.
The large amounts of uncertainty caused by the war are heightened by countries’ reliance on each other. The future of the world’s economy will very likely be influenced by the results of the war. With the negative effects of a global economy in full view, Marsh believes “there needs to be a push to have more essentials produced more locally.”