Gas prices are displayed on a sign at a gas station on March 03, 2022 in Hampshire, Illinois.
$4 gas becomes a reality in more states
01:54 - Source: CNNBusiness

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CNN  — 

Americans and most of the world have been united in condemning Russia for invading Ukraine.

Now they might have to start putting their money where their mouth is as US lawmakers consider an embargo on Russian oil.

High inflation and rising energy prices amid the economy’s pandemic recovery were already making life more expensive.

Now, a little more than a week into Russian President Vladimir Putin’s war, California has become the first US state to have an average gas price above $5 per gallon.

Nationwide, US gas prices are “surging at a pace drivers haven’t seen since Hurricane Katrina in 2005,” writes CNN’s Chris Isidore, adding that the national average record for gasoline – $4.11, set in 2008 – is within sight. That would be a huge jump from a year ago, when the national average price was $2.75 a gallon.

The average price of diesel is also skyrocketing, which will drive up transportation costs for businesses.

American lawmakers are pushing a bipartisan effort to end all imports of Russian oil and sanction Russia’s energy sector.

That the energy sector has so far been left mostly untouched speaks to the nature of the global energy supply. Russia was the world’s No. 2 oil producer last year, behind the US. A disruption in oil exports would drive up costs everywhere.

Politicians are willing to pay the price. “I’m all for that. Ban it,” House Speaker Nancy Pelosi said this week on Capitol Hill.

“I would gladly pay 10 cents more per gallon,” Sen. Joe Manchin, the West Virginia Democrat, said at a Thursday press conference.

US gas prices are already up more than three times that amount during the course of Russia’s invasion of Ukraine. And energy traders, according to Isidore’s report, are already shying away from purchasing Russian oil due to the war.

In a separate story, Isidore notes that many multinational companies, from Apple to General Motors, are going above and beyond required sanctions. It’s getting more difficult to find tankers willing to call on Russian ports and insurers willing to guarantee shipments – which has created a “de facto ban” on Russian oil, according to one oil analyst.

Mostly symbolic. For the US, a ban on Russian oil would be mostly symbolic, since very little of the oil used in North America comes from Russia.

Sanctions by the US and other countries to stop Russian exports around the world would be much more costly, especially in Europe, which is fueled by Russian oil.

“Russian oil is not crucial to the US. It’s crucial to Europe,” Tom Kloza, global head of energy analysis at the Oil Price Information Service, told CNN’s Matt Egan. “I don’t know what Europe is going to do without Russian crude. If you take it away, Europe is really behind the eight ball.”

I asked CNN’s polling director, Jennifer Agiesta, how Americans would react to a protracted hike in gas prices. She offered these thoughts:

Should gas prices be a consideration? A recent CNN poll conducted by SSRS after the Russian invasion of Ukraine began found that 71% of Americans want the government to take the impact on gas prices into account when deciding policies toward Russia, though only about a third (34%) say it should be a major factor in deciding those policies.

Republicans (45%) were more likely than Democrats (28%) or independents (30%) to feel it should be a major consideration. A Washington Post/ABC News poll completed partly before the invasion began found that 51% of Americans would support sanctions against Russia even if they resulted in higher energy prices in the United States.

What price increase will Americans accept? As the fighting continues and the prices creep higher, two things to watch for in polling are:

  1. How much of an increase the public is willing to accept, which can vary based on the tradeoff the public is being asked to make, and
  2. Whether the broad support for sanctions that polling finds now drops as gas prices rise.

For example, recent polling from the Washington Post and the Kaiser Family Foundation on increasing gas taxes to pay for policies that would combat climate change finds that 64% would oppose a 10 cent increase per gallon in the gas tax, but that opposition rises to 74% when the proposed increase is 25 cents per gallon.

The Iraq invasion example. Back in August 1990, amid the Iraqi invasion of Kuwait, a USA Today survey found that most Americans were willing to pay higher gas prices in order to institute a ban on Iraqi oil, but there wasn’t universal agreement on how much was acceptable:

  • 21% were willing to pay 25 cents more per gallon (about the equivalent of 53 cents in today’s dollars).
  • 16% would pay an additional 50 cents per gallon.
  • 5% would be 75 cents more, and
  • 27% were willing to accept an increase of $1 or more per gallon (at least $2.14 in today’s dollars).

But people can’t always predict how they’ll react to hypothetical future events, so watching whether the high American support for sanctions holds over time in the face of increasing gas prices will also be a critical indicator.

How will an oil price shock affect the wider economy? Agiesta mentioned the cost of oil in the early 1990s. CNN’s Paul R. La Monica notes that particular oil shock was among several during the 20th century that drove the US into a recession.

But there is a key difference today. The US is less reliant on oil and cars.

“Until workers start losing jobs, higher oil prices may be more of an annoyance than a game changer for the economy that leads to a crippling recession,” La Monica writes.

Value meltdown in Russia. In the US, the direct effects of Russia’s war on Ukraine might be frustration to people filling up their cars, for now. But the economy of Russia is taking a very real hit – despite the fact the West has so far not directly sanctioned energy exports, the main driver of its wealth.

Russia’s second-largest oil company, Lukoil, which produces more than 2% of the world’s crude oil and employs more than 100,000 people, has broken ranks with Putin and called for an end to the war, writes CNN’s Charles Riley. “Lukoil shares listed in London have lost roughly 99% of their value following the invasion,” he writes.

The company’s chairman and CEO, Vagit Alekperov, is not among the oligarchs under sanctions by the US government, but he is included on CNN’s fascinating oligarch yacht tracker.

Where are the yachts? Casey Tolan, Curt Devine and Daniel A. Medina map the many yachts of the oligarchs, sanctioned and not, which are spread between pleasure spots around the globe.

Turns out yacht ownership is difficult to trace. On Wednesday, the French seized a yacht it says belongs to Igor Sechin, a sanctioned Russian oil company executive and Putin ally. A management company denied he was the owner.

Shedding assets in the West. The oligarch Roman Abramovich, under pressure in the United Kingdom, is trying to unload Chelsea Football Club – last year’s Champions League winner – perhaps to avoid sanctions. But he has not yet been the subject of UK sanctions and denies ties to Putin. He’s pledged to give net proceeds from the sale to victims of the war.

The Russian Google could close down. Yandex is like the Russian version of Google and Uber combined, and the collapse in the value of Russian assets could lead it to go bust, according to CNN’s Mark Thompson.

For all the financial ramifications in Russia and the US, the US is steadfast in its pledge to not join the military fight in Ukraine.

“Deconfliction line.” In fact, the Pentagon has set up a back channel communication line with Russia to clear up misunderstandings between the two nuclear-armed countries.

Realpolitik. CNN’s Marcus Mabry writes in an opinion piece that for all the vocal support of Ukraine, the sanctions and the talk of an oil ban, the reality is the cavalry is not coming to save the country:

To put the current state of international affairs in the most terribly brutal realpolitik terms: Is Ukraine worth the possibility of involving the United States and Russia, two nuclear powers that could destroy human life on earth, in a shooting war? And are the risks to their citizens and the world worth keeping Putin out of Ukraine?

These questions do not consider the morality of allowing a smaller country to be swallowed by a larger one, or a democratic one to be crushed by an authoritarian one. But that is the whole point of realpolitik.