The cost of gasoline has skyrocketed across the U.S. Oil prices have been more expensive in recent weeks due to the war happening between Russia and Ukraine. As talks of a ceasefire become more serious, oil prices are beginning to drop. Has the U.S. learned its lesson about being overly dependent on oil from other countries? Let’s take a look at what current discourse is saying.
Short Term Reprieve
There hasn’t actually been any real progress made on securing a significant amount of additional oil. However, as Russia and Ukraine sit down and more seriously discuss a ceasefire, it seems as though the world is cautiously optimistic. As these negotiations have progressed, oil has dropped below $100. An article written for aljazeera.com elaborates further saying, “The negotiations between the two countries are driving prices lower in the near term as markets are “much more sensitive to sentiment than actual supply and demand calculation,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.”
Risks to Demand
The U.S. receives a large portion of its oil from Russia. From the beginning, Russia has been warned of harsh sanctions should they continue down the path that leads to war. This put the U.S. in a position where they couldn’t rely on Russia to supply them with oil. Having to source it from other countries has led to a scarcity mindset and a drastic increase in prices.
Along with the risk to demand that stems from the Russia/Ukraine war, there are other factors to take into consideration as well. The above mentioned article goes on to say, “Risks to demand have also emerged with a resurgence of lockdown measures in China amid a surge of Covid-19 infections. The world’s largest importer of oil placed 17.5 million people in Shenzhen under a lockdown and forbade people in Jilin province to travel, the first time the country has sealed off an entire region since April 2020.”
Another difficulty comes in the form of Iran. The U.S. was in talks with this country in order to secure a trade agreement. Iran told the U.S. they would happily solve the oil crisis if they could resume a conversation about restoring a nuclear deal. When the United States declined, negotiations dissolved pretty quickly. This is yet another reason that explains why gas prices have skyrocketed.
Future Ramifications
What changes can we expect after experiencing this extreme disruption to our oil supply chain? For starters, more resources will likely be spent on exploring alternative fuel options. Also, there will likely be a push to expand the number of countries the U.S. buys oil from. This will mean more negotiations with various countries- primarily in the Middle East.
You can’t put all your eggs into one basket as they say. At this time, it’s difficult to say if the U.S. is capable of adopting any long term solutions to their oil dependency.