Brent crude, the global benchmark, rose as much as 6 percent to more than $100 a barrel after Russia invaded Ukraine and could rise further as Russia responds to US and European sanctions. Russia is a major exporter of energy to Europe.
“Russia could potentially retaliate by restricting oil exports,” Patrick De Haan, chief of petroleum analysis at GasBuddy, said Thursday. Pump prices are likely to reflect the effects of the conflict almost immediately, he said.
Russia’s attack on Ukraine and the global economy
An increasing concern. Russia’s attack on Ukraine could cause staggering increases in energy and food prices and deter investors. The economic damage from supply disruptions and economic sanctions would be severe in some countries and industries and undetected in others.
Some economists have noted an uneasy precedent when it comes to a gas shock.
Rising energy prices in the 1970s helped exacerbate inflation, making rapid price increases a lasting feature of the economy, a feature that only faded after a painful response from the Fed. The central bank pushed interest rates – and unemployment – into double digits to prop up price increases during what is now known as ‘Great Inflation’.
That episode came after years of rapid price increases that the Fed had been slow to experience. This time, the central bank is gearing up to withdraw support quickly.
The Fed is expected to initiate a series of rate hikes in March, policy moves that should slow lending and spending, which could translate into weaker hiring, more subdued economic growth and more modest price increases.
“The situation in Ukraine is unlikely to change the fundamental conclusion that it is time to change monetary policy,” said Julia Coronado, founder of MacroPolicy Perspectives. “They are not going to suspend all rate hikes just because there is war in Ukraine.”
While the Fed has primary responsibility for controlling inflation by directing economic demand, the White House is trying to roll out policies to help supply catch up with demand, and has promised to try to do what it can. to prevent oil and gas prices from rising to unsustainable levels during the Russian conflict.
“I know this is difficult and Americans are already in pain,” Biden said during a speech on Thursday. “I will do everything I can to limit the pain the American people feel at the gas station. This is critical to me. But this aggression cannot go unanswered.”
