Following the Russian invasion of Ukraine, the prices of gasoline and oil skyrocketed to unprecedented heights. Suddenly, gas was $4.30 per gallon, and oil was $125 per barrel. When  combined with high inflation, many Americans struggled to pay the new price.

Yet just two years ago, at the beginning of the COVID-19 pandemic, oil prices were reaching record lows as demand slumped. Even though the demand recovered in the later months, oil and gas prices were not exorbitant, at least compared to the post-2008 period.

Then came geopolitical tension in Ukraine. While the demand continued to rise, Russia, the world’s third-largest producer of oil, massed its troops on the Ukrainian border. Its invasion in late February caused the US to impose, among other economic sanctions, a ban on oil and gas imports from Russia. The European Union, however, was not able to impose such severe restrictions on oil and gas; the EU gets about 40% of its gas and 25% of its oil from Russia. In addition, Germany has closed the controversial Nord Stream 2 pipeline. Germany and Italy are especially dependent on Russian gas, but the EU has stated that Europe will adopt alternative energy sources and wean off Russian gas by 2030.

Due to the fact that demand was still increasing and supply had suddenly decreased, gas and oil prices skyrocketed to prices that had not been seen since the 2008 recession. 

However, the extreme prices may not last very long. Crude oil prices have already dropped by 30% since their peak, and gas prices may follow. This is due to reduced demand from China because of new lockdowns, as well as hopes that the UAE and Saudi Arabia will be able to produce more oil to compensate.

The White House sees reducing the world’s dependence on Russian oil and gas as the best option, stating that “[t]he only way to eliminate Putin’s and every other producing country’s ability to use oil as an economic weapon, is to reduce our dependency on oil.” Whether the world’s economies can achieve that goal remains to be determined.

References:

1. Duckett, Brown. “Oil Prices Tumble Below $100 and Keep Falling. Here’s Why.” Barron’s, 15 March 2022, https://www.barrons.com/articles/oil-prices-tumble-below-97-a-barrel-heres-why-51647341663. Accessed 16 March 2022.
2. “Gasoline prices in North Carolina, the USA – 07-Mar-2022.” GlobalPetrolPrices.com, https://www.globalpetrolprices.com/USA/North_Carolina/gasoline_prices/. Accessed 16 March 2022.
3. Horowitz, Julia. “Oil prices dropped 30% in a week. What gives?” CNN, 15 March 2022, https://www.cnn.com/2022/03/15/investing/premarket-stocks-trading/index.html. Accessed 16 March 2022.
4. Horton, Jake, et al. “Ukraine war: How reliant is the world on Russia for oil and gas?” BBC, 14 March 2022, https://www.bbc.com/news/58888451. Accessed 16 March 2022.
5. Picchi, Aimee. “3 reasons why gas prices are so high — and when they might come down.” CBS News, 15 March 2022, https://www.cbsnews.com/news/gas-prices-high-expensive-come-down-cbs-news-explains/. Accessed 16 March 2022.
6. “US All Grades All Formulations Retail Gasoline Prices (Dollars per Gallon).” EIA, https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m. Accessed 16 March 2022.
7. “What sanctions are being imposed on Russia over Ukraine invasion?” BBC, 15 March 2022, https://www.bbc.com/news/world-europe-60125659. Accessed 16 March 2022.
8. The White House. “FACT SHEET: United States Bans Imports of Russian Oil, Liquefied Natural Gas, and Coal.” The White House, 8 March 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/08/fact-sheet-united-states-bans-imports-of-russian-oil-liquefied-natural-gas-and-coal/. Accessed 16 March 2022.