Fallout from U.S. ban on Russian oil imports
West Michigan economics expert explains short and long-term impacts.
U.S. sanctions on Russia are economic weapons. Added to the arsenal a ban on Russian oil imports. That’s about 3% of U.S. crude oil imports. While the aim is to damage the Russian economy, the fallout is being felt by American motorists. What are the short and long-term impacts?
As of Tuesday, as prices at the pump in Grand Rapids averaged about $4.25 per gallon. If prices continue rising at the current trajectory over the next five days?
“It will rise enough to get us up to $4.50 to $4.75 a gallon.”
Paul Isely is associate Dean in the Seidman College of Business at Grand Valley State University. Should the war expand or more economic sanctions are applied, $5.00 a gallon gas is not out of the question over the next six weeks. Increasing supply is the remedy. Easier said than done.
“Saudi Arabia has some spare supply. If we reach a nuclear deal with Iran. They could add a million, maybe two million barrels, and Libya is off by about a half-million barrels to a million barrels from what they could do if their country was stable. So, all three of them together however, do not have enough capacity to overcome the short-term shortfall coming out of Russia. So then, what has to happen is, we have to increase our production here in the United States. And because of where we are after COVID, because of changes in regulations, because of businesses going out of business, because of not being able to find workers, it will take months and months and months to increase production here if we can even do it.”
Isely expects the high price of oil to add two full percentage points to the already high inflation rate. Consumer can expect to pay about 8% more for just about everything they purchase.
Eventually, the additional Russian oil will flow to China and once that happens, Isely says China will decrease its oil purchases made elsewhere. That will free-up supply and reset the global oil equilibrium.