Since 2020, the world’s economy has been crippled due to the supply chain shock and labor shortages created by the Covid-19 pandemic. A new global disruption has caused the demands for commodities to soar – war. Russia stopped all international shipments of oil and gas, causing the United States of America to participate in de-globalizing these commodities. This unpredicted switch has affected American households particularly hard due to the price of gas which increased 41% YTD in 2022.
There are two significant reasons for the increased cost of gas. The first being in 2021, the Biden administration announced the ban of new drilling on federal land to slow down carbon-related climate change. Russian oil has faced sanctions stemming from the war in Ukraine; the supply of natural gas and oil has declined globally and caused the gas price to increase further. Although America had only received 3.5% of its national oil consumption from Russia before the war, according to Forbes, this has put more pressure on domestic producers to meet demand.
This increase in gas prices has already caused national inflation highs not seen in 40 years. The rapid rise in prices has hurt consumers’ buying power and caused a decrease in consumption. Consumers have been forced to pay higher prices for required transportation, and the increase in input costs for businesses has and will continue to raise the prices of necessary commodities. This has led directly to decreases in travel, with the most impacted states being those in the Midwest that require longer travel times to get to destinations of interest. This has been particularly impactful for Kansas, as their change in weekday trips has decreased by 14.1% from February 27th to March 6th of this year (Inrix).
Although the Biden administration has recently made plans to open up federal lands for oil drilling, prices are not expected to decrease rapidly as the effects of these measures will not materialize for the next couple of years. Trade with Russia is also not likely to resume for the foreseeable future. While reintroducing drilling, while having beneficial economic effects, will almost certainly increase carbon emissions and create environmental harm. While steps are being taken to alleviate the impacts of these national supply issues, American households will likely continue to feel the effects of higher prices for the foreseeable future.
In our recent webinar, “Rising Gas Prices Effect on Transportation Industry,” our associates Phil Meneghini and David Casazza further explore how rising gas prices have the transportation industry. You can access the video and slides by clicking here.
Find more about gas prices through the Forbes website by clicking here.
Find more about oil exports through the Forbes website by clicking here.