Gas prices have soared over the past week with the US gasoline prices surging by 11 percent to the highest ever recorded since 2008 on the back of global sanctions against Russia’s invasion of Ukraine.
The sanctions have crippled Russia’s ability to export crude oil sending economic shockwaves across the globe.
The gas prices are expected to continue climbing as the conflict between the two countries further disrupts oil production.
Russia is the second-largest oil producer and exporter in the world. Although the sanctions have not included the oil and gas industry, it would seem that there is no seemingly end in sight for the economic turbulence the Russia-Ukraine conflict is causing.
Europe and other regions of the world are heavily dependent on Russia’s oil and economic sanctions on the commodity will cause prices to only spike further.
According to the American Automobile Association, the average American gasoline price jumped another 9 cents on Saturday, March 5th, to 4.01 dollars, the first time the price has gone above the 4-dollar per gallon mark since 2008.
By the evening of March 6th, U.S. crude futures had soared over 12 percent to 130.50 dollars per barrel, also the highest since July 2008, as the United States and its European allies consider banning imports of Russian oil.
Gasoline cost is heavily influenced by the cost of crude oil, which it’s refined from. On Friday, March 4, the price of Brent crude, the international benchmark, settled at 118.11 dollars a barrel, an increase of nearly 7 percent from a day before.
By comparison, crude oil averaged about 74 dollars a barrel in December 2021. As the prices continue to rise, it is expected that in mere days, the average gas prices will beat the all-time high of 4.11 dollars in the U.S.
The all-time high of Brent crude recorded in 2008 – which hit 147.50 dollars – was fueled by the Brazilian oil workers strike and threats to supplies from Nigeria and Iran. At that time, average US gas prices peaked at 4.11 dollars a gallon.
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In a worst-case scenario, if the Russian gas and oil is fully cut from the global market, experts warn that the crude could go up to 130 dollars a barrel, or even higher.
If crude reaches that high in 2022, a price of 7 dollars a gallon wouldn’t be out of the realm of possibility.
At this point, however, it will trigger a global recession. People would start limiting their activities to the bare essentials and only the oil companies will benefit the most.
Incidentally, over the past year, oil companies reaped huge benefits from the steady rise. The largest 24 oil companies reported 174 billion dollars in profits in the first nine months of 2021. Most of them had rejected requests to increase oil production to mitigate price increases.
In the meantime, the rising gas prices are disproportionately hurting developing countries such as Kenya, whose cost of living is currently frustrating its citizens.
Kenyans are currently choked by the increased food prices, but they should prepare for soaring fuel prices and a further rise to the food bills amid the crisis in eastern Europe. The effect will spill off and hike transport prices, energy bills, and the cost of manufactured goods.
The crisis is also going to affect traders at the Nairobi Securities Exchange (NSE) by triggering sell-off of shares as investors opt for bonds and other risk-free or safe assets.
The NSE will significantly suffer, particularly since a majority of the traders – up to 58 percent – are foreign investors.