The invasion of Ukraine by Russia is taking place hundreds of kilometres distant from the nearest major US metropolis. Nonetheless, the economic ramifications will be felt by millions of American families.
Because the global economy and financial markets are intertwined, this is the case. Events on one side of the earth may cause shockwaves on the other, as Covid proved.
In this situation, a Russian invasion of Ukraine would undoubtedly raise the already-high cost of living in the US, sway investment portfolios, and perhaps stifle economic recovery.
Oil prices have risen to levels not seen since 2014, owing in part to fears that the war would disrupt Russian energy supplies.
According to Rystad Energy, Russia is an energy giant, generating 9.7 million barrels per day last year. This is only second to the United States, and it is more oil than Iraq and Canada combined.
Investors are on high alert for any potential supply shortages that may arise from a variety of factors, including destroyed infrastructure as a result of a war, sanctions against Russia, or Moscow seeking to weaponize shipments.
Oil prices, according to JPMorgan, may “easily” soar to $120 per barrel as a result of the crisis. According to JPMorgan, if Russian oil shipments are halved, petroleum prices will rise to $150 per barrel. A sharp increase in oil prices might be somewhat mitigated by consuming countries releasing emergency stocks and OPEC increasing output.
Still, another spike in oil prices would boost gas costs, which lag behind crude price changes. According to AAA, the national average price of a gallon of petrol has already reached a seven-year high of $3.54.
Inflation is the most serious issue confronting the US economy. And Russia’s incursion might exacerbate the situation. Oil is now trading at around $100 per barrel, but if it rises to $110, the year-over-year inflation rate would exceed 10%, according to an RSM research shared with CNN. This is an increase from the existing 7.5 percent. Inflation in the United States hasn’t reached 10% since 1981.
Higher oil and natural gas prices would not only raise gas prices, but they would also raise home heating and power bills.
Higher energy prices would make flying more costly, as well as transportation and input costs, for firms already dealing with rising costs. Businesses would very certainly pass on some of these greater expenses to customers in the form of pricing increases.
Other commodities, in addition to energy, may undergo price volatility. Metals such as aluminium and palladium are produced in large quantities in Russia. Russia is also the world’s largest wheat exporter, while Ukraine is a notable wheat and corn exporter.
In a research released last week, David Kelly, chief global strategist at JPMorgan Funds, stated, “All of this would occur at a time when commodities supply are more stretched than they have been in a generation.”
Uncertainty is something that investors despise. The Dow Jones Industrial Average dropped 700 points the morning following the invasion, as investors worried about an oil shock, rising inflation, and a muddled sanctions system.