Investors would purchase first and then ask questions.
“There’s a good chance that we will reach $100.” Robert Yawger from Mizuho Securities, director of energy futures, said that it would be inflationary with an “x” sign. “We don’t really need it at all.” We don’t have the money to pay for that.”
According to the International Energy Agency’s head, a conflict between Russia or Ukraine could increase gas prices.
“Such an enormous geopolitical event would [have]Major implications on the gas prices, if they are not leading to chaos,” Fatih Birol, Executive Director of the IEA, told Julia Chatterley at CNNI’s First Move.
“All bets are off”
It’s impossible to say how high prices would go — and how long they would stay high. But $100 oil will surely increase the price of gasoline. A Russia-Ukraine conflict could impact the majority of Americans.
In recent days, gasoline prices have risen, although they are not as volatile as oil. According to AAA, the national average reached $3.32 per gallon on Wednesday. This is an increase from the $3.28 low.
Claudio Galimberti is Rystad Energy’s senior vice president for analysis. He stated, “If there is war with Russia then all bets go off.”
Analysts say that oil prices have risen sharply this week due to concerns about Russia-Ukraine conflicts.
Helima Croft from RBC Capital Markets, head of global commodity strategies, said that the market has not been able to recognize the dangers of an invasion. “Putin doesn’t really have bluffer instincts. He is known for backing up words with actions.”
The White House has been talking to countries and energy companies
All of these facts highlight the difficult economic and national security environment in which the White House is currently located.
President Joe Biden already faces a serious political and economic problem with inflation. Inflation is likely to worsen with the recent rise in gasoline prices. A conflict between Russia and Ukraine would only make things worse.
“Whatever we decide to be the right course for us collectively interest and security,” a spokesperson from the National Security Council stated to CNN that “we are ready to deliver severe cost to the Russian economy, including its financial system, and sectors deemed crucial to the Kremlin’s ambitions and President Putin’s — while minimising unwanted spillover.”
The last part, which is to minimize the impact, can be difficult.
CNN was told by a top administration official that contingency planning is something officials take very seriously. They want to be prepared for any potential impacts and minimize spillovers. According to the official, contingency planning includes discussions with countries and energy companies.
A White House official stated that the White House was “very clear about its response to invasion” and that “that should already be priced into market prices.”
Natural gas prices could go up
The biggest cost to Europe in a conflict would be for their people. This is because Europe depends on Russia for natural gasoline. As natural gas futures rose, heating costs in Europe soared last fall.
American consumers will feel the impact less directly.
Russia sends very little oil to the United States. It shipped only 200,000 barrels per daily as of October. This represents just 3% total US oil imports, which is 6 million barrels.
However, crude oil is a globally traded commodity so the prices at your pump are based on world oil prices. Anywhere can feel an oil shock.
Not only that, but also a significant ripple effect would be caused by a rise in international natural gas prices.
This is because high natural gas prices could force many power plants and factories across Europe and Asia to shift to oil. Also, oil would be in greater demand.
However, there would also be a risk of shortages.
First, a conflict militaristically would endanger the energy infrastructure of the region.
Russia could cut its natural gas supply, or crude oil, even if refineries and pipelines are not affected.
Croft, a strategist at RBC, stated that Russia can weaponize energy exports to make people feel the pain. “Many believe Russia will react by withholding supplies, to make us pay for the loss.”
The White House could respond to an invasion with sanctions against Russian oil and natural gases.
Wednesday’s warning by President Biden was that there would be “severe and significant damage” to the Russian economy if Putin invades Ukraine.
Biden stated, “It’s heavy, it will be real and it will be consequential.”
Biden stated that Russia is dependent on oil-and-gas exports to support its economy. Biden did not threaten to impose sanctions on energy sources.
Croft is an ex-CIA analyst who suggested that US officials’ reluctance to threaten Russia with energy sanctions was telegraphing a vulnerability towards Putin.
She stated that “if you cut out energy you are signaling your concern about energy.”
Russia’s future as a major gas supplier could be threatened by any conflict.
Birol, IEA’s director of communications, stated that “When you make long term contracts you must trust your partner that you will get this gaz under any conditions.”
Inflation could worsen if there are sanctions
Biden could not agree to lift sanctions.
On one hand, Russia’s energy supply is vital. It makes it a target for sanctions.
Russia is a one-pony country. Their only resource is energy. It’s their economy’s glaring weakness,” stated Yawger from Mizuho.
Yet, if Russia were to limit its natural gas and oil supplies, it would exploit this weakness to drive up prices at a time they are already high.
“This would be a terrible war situation. Yawger said that if you put sanctions on energy, it just increases the inflation story and takes things to the next level. You would be doing this to commit economic and political suicide.
Will OPEC or Big Oil be able to save the day?
Croft, an RBC analyst, stated that the Biden administration would likely react to a price rise by releasing more barrels of the Strategic Petroleum Reserve. This will likely be in coordination with other countries. This could cushion the blow.
Biden could also attempt to persuade Saudi Arabia-led OPEC, to open the spigots. Biden could argue that producers don’t need high prices if they are unable to meet demand.
Analysts predict that US oil companies, who have been slow to increase their production in recent years, will respond to $100-plus oil by increasing their output.
However, this wouldn’t mean that gasoline would be cheaper overnight. In the meantime, gasoline prices would be high.
—CNN’s Chris Liakos contributed this report