This is how sanctions against Russia will actually cost you more

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This is true even for American consumers, although relatively few Russian exports reach the US coast.

For example, Russian oil and gas account for less than 4% of American fuel consumption. But the average price of regular gasoline has risen 8 cents a gallon to $ 3.61 since the day before Russia invaded Ukraine, and wholesale prices are rising even more. This means that in a few weeks the gas is expected to reach an average of $ 4 per gallon in the United States for the first time since 2008. It may soon surpass the record $ 4.11 per gallon set this year.

“This is a global market,” said Tom Klose, global head of energy analysis for the Oil Price Information Service, which tracks AAA gas data. “We need to compete more for the unblemished Russian oil that is available.”

Despite the sanctions, it is still legal to buy Russian oil and natural gas. But much of it remains unsold. Many traders are reluctant to buy it because of the difficulty of making transactions with sanctioned Russian banks.

Oil prices rose another 3% on Monday in response to new rules restricting the use of SWIFT by Russia, the main water pipeline for global finance that allows banks to send secure communications needed to move funds.

“The removal of some Russian banks from SWIFT could lead to disruptions in oil supplies as buyers and sellers try to figure out how to navigate the new rules,” said Andrew Lipow, an industry consultant, in a note to customers on Sunday. “In the end: No funding, no oil.”

Another concern for traders: how to safely bring tankers into Russian ports to take oil.

“No tankers means no oil,” Klose said.

Delivery

The price of one gallon of diesel reached $ 4 per gallon for the first time in nearly eight years over the weekend. Although few Americans drive diesel cars, most large trucks use it. And almost all goods sold in the United States at one time are transported by truck.

The transport industry itself has been facing challenges for years, mainly due to a shortage of drivers. Higher fuel costs will be passed on by transport companies in the form of fuel charges. So all companies will have to pay higher transportation costs. With inflation already high, they are likely to pass on these costs to consumers.

“Household and business inflation expectations have reached very high levels and could rise further if the Russian invasion of Ukraine leads to soaring energy prices or disrupts supply chains,” Goldman Sachs wrote in a note Monday. higher and more stable inflation than before. forecast.

Goods

Although the Russian economy is focused on its energy exports, they are not the only Russian products the West uses. The United States bought about $ 25 billion worth of goods from Russia last year, not including $ 4.8 billion in crude oil. This may sound like a lot, but oil-free purchases account for just over half of what U.S. customers bought from little Thailand last year.

Goods such as wheat and timber are Russia’s main exports, and these prices have also risen on world commodity markets. Russia is also a major exporter of such important metals as aluminum, palladium, nickel and titanium. Palladium is used in cars, cell phones and even dental fillings. Nickel is used to make steel and electric car batteries. Titanium is crucial for aerospace products, including commercial aircraft.

Uncertainty over the supply of these products and rising commodity prices could create “additional disruptions in global supply chains that are already suffering from the pandemic and semiconductor shortages,” Carsten Brzeski, the global chief of staff, said in a note Monday. macroeconomics. for ING Research. This can also lead to higher prices, as the shortage of computer chips is a major factor in the prices of new and used cars reaching record levels.

“Globally, soaring commodity prices will exacerbate existing inflationary pressures,” Brzeski said.

Fed

Still, the war could force the US Federal Reserve and other central banks to effectively withdraw their efforts to curb inflation through higher interest rates. Uncertainty about the overall economic impact may make regulators even more cautious.

Federal Reserve Governor Christopher Waller said in a speech last Thursday that based on the latest economic data, “strong arguments can be made” for a half percentage point increase in March, the first since 2000 that the Fed raised interest with so much per meeting. But he then warned: “Of course, the state of the world may be different after the attack in Ukraine, and this may mean that a more modest tightening is appropriate.” Waller added that the right decision is now more uncertain.