Here’s how sanctions on Russia will actually cost you more

On Mar 1, 2022

That’s true even for American consumers, even though relatively few Russian exports reach US shores.

For example, Russian-produced oil and gas accounts for less than 4% of fuel consumed by Americans. But the average price of regular gasoline is up 8 cents a gallon, to $3.61, since the day before Russia invaded Ukraine, and wholesale prices are up even more. That means within a couple of weeks, gas is expected to reach an average of $4 a gallon nationwide in the United States for the first time since 2008. It could soon top the record $4.11 per gallon average set that year.

“It’s a world market,” said Tom Kloza, global head of energy analysis for the Oil Price Information Service, which tracks gas data for AAA. “We have to compete more for the non-tainted Russian oil that’s available.”

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

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Oil prices rose another 3% Monday in response to the new rules limiting Russia’s use of SWIFT, the essential plumbing for global finance that allows banks to send the secure communications required to move funds.

“Removing some Russian banks from SWIFT could result in a disruption of oil supplies as buyers and sellers try to figure out how to navigate the new rules,” Andrew Lipow, an industry consultant, said in a note to clients Sunday. “Bottom line: No funding, no oil.”

Another concern for traders: how to safely get tankers into Russian ports to pick up oil.

“No tankers means no oil,” Kloza said.

Delivery

The price of a gallon of diesel hit $4 a gallon for the first time in nearly eight years over the weekend. Although few Americans drive diesel-powered cars, most large trucks use it. And just about all goods sold in the United States are moved by truck at some point.

The trucking industry itself has been facing challenges for years, mostly due to a shortage of drivers. The higher fuel costs will be passed on by trucking companies in the form of fuel surcharges. So all businesses will have to pay higher transportation costs. With already high inflation, they are likely to pass along those costs to consumers.

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

Commodities

Although Russia’s economy is centered around its energy exports, they are not the only Russian products the West uses. The US bought about $25 billion in goods from Russia last year, not including $4.8 billion in crude oil. That may sound like a lot, but the non-oil purchases amount to only slightly more than half of what US customers bought from tiny Thailand last year.

Commodities such as wheat and lumber are major Russian…