Russian anti-war protesters fill the streets of St. Petersburg on Thursday after Russian President Vladimir Putin authorized a military invasion of Ukraine. (Reuters)
Russian President Vladimir Putin’s invasion of Ukraine may seem like a remote conflict to Americans more concerned with troubles at home, and the stake we have in the conflict may be far smaller than that of Ukrainians who will suffer and die, but we’re going to feel the effects of Putin’s aggression nonetheless, most immediately in the form of high gasoline prices.
Russia was already affecting energy markets even ahead of yesterday’s invasion, the worst security crisis Europe has faced since World War II. Brent crude oil on Thursday surged above $105 a barrel for the first time since 2014.
Of most immediate concern to Americans — while the threat of invasion had been driving up U.S. gas prices, now that the attack has begun, expect things to get worse.
As of yesterday, AAA put the national average for a gallon of gas at $3.53. That’s up four cents in a week, 21 cents in a month, and it’s 90 cents more than a year ago.
That puts the average price in the 10 costliest states at: California ($4.74), Hawaii ($4.51), Oregon ($3.98), Washington ($3.98), Nevada ($3.95), Alaska ($3.85), New York ($3.75), Pennsylvania ($3.73), Washington, D.C. ($3.72); and Arizona ($3.71).
President Biden and other Western leaders Thursday announced a wide range of sanctions against Putin, other individuals and Russia itself. The U.S. can expect retaliation for those sanctions in the form of Russia withholding oil from the world market. (Retribution may well also come in the form of cyberattacks against U.S. governments and businesses.) Russia is the world’s second-biggest oil exporter after Saudi Arabia and the third-biggest oil producer. Market supply was already tight and driving up prices.
“Russia is one of the leading oil producers globally, behind only the United States and Saudi Arabia,” said Andrew Gross, AAA spokesperson. “And if they choose to withhold their oil from the global market, such a move would eventually be reflected in higher gas prices for American drivers.”
The federal Energy Information Administration (EIA) reports that domestic gasoline supplies are already down — though gasoline demand has fallen much more because of high prices. Which should be driving prices down, but so far isn’t.
Russia is also the world’s top producer of natural gas, a lead that will only grow with control of Ukraine. Wars are often fought over natural resources, and that’s a key motive in Putin’s actions against resource-rich Ukraine. His control of its vast coal and gas reserves should have us concerned, both for immediate energy needs and in global efforts to mitigate climate change. Ukraine’s Donbas mining region will be key to Russia filling a contract to provide China with 100 million tons of coal, with another 40 million pledged to India.
European energy prices soared immediately after Russian forces invaded Ukraine. Benchmark Dutch gas futures rose as much as 62%, the most since at least 2005, in their fourth-straight daily advance. German power for March jumped as much as 58%. Coal and oil also surged.
The continent depends on Russia for more than a third of its gas supplies, and about a third of those flows are shipped via Ukraine. Low inventories of the fuel last year sent prices to record levels, and volumes from Russia have been curbed since the second half 2021.
European coal for next year gained as much as 24%.
Russia on Thursday was offering its Urals crude at a discount of $11.60 a barrel. There were no bids. And those who work with Russia are leery of a sanctions backlash. Officials at three large oil tanker companies, two shipbrokers, four oil traders, and one refinery all said that Russia-related activity has been put on hold for now. The country sends about two-thirds of its exports by sea to end-users, with many of those cargoes handled by traders.
“Buyers in Europe will probably avoid taking Russian crude as long as the tensions remain elevated even if U.S. does not impose full scale sanctions,” said Alex Kavouris, lead oil analyst at Facts Global Energy.
Instability in other markets
Sanctions against Russia could also upend commodity markets for metals, and even food. Ukraine, known as the ‘breadbasket’ of Europe, is a major exporter of wheat. It’s also a major exporter of nitrogen fertilizer used by U.S. farmers. And Agriculture Secretary Tom Vilsack warned fertilizer companies and other farm suppliers against taking “unfair advantage” of the Ukraine conflict by price-gouging.
Fertilizers are in focus because higher costs of production for farmers have contributed to rising food prices.
Here’s a rundown of major Russian and Ukrainian exports — many of which could affect the global auto industry.
Grains, oilseeds
Russia and Ukraine are major wheat suppliers, accounting for a combined 29% of global exports, the bulk of which go through ports in the Black Sea.
Much of that wheat is exported to major buyers in the Middle East and North Africa such as Egypt and Turkey.
Ukraine is also one of the world’s top four corn (maize) exporters and had been shipping around 4.5 million tons a month with major customers including China and the European Union.
The two countries also account for about 80% of global exports of sunflower oil.
Gas, energy
Europe relies on Russia for around 40% of its natural gas. Most comes through pipelines including Yamal-Europe, which crosses Belarus and Poland to Germany, and Nord Stream 1, which goes directly to Germany. By last year Ukraine was a transit corridor largely for gas going into Slovakia, from where it continued to Austria and Italy.
Russia has said it will continue to deliver uninterrupted natural gas supplies to world markets.
Although EU or U.S. sanctions on Russian gas imports are seen as unlikely, damage to pipelines or Russia stopping gas transit through Ukraine could happen, analysts said, and fully replacing Russian gas to the EU would not be achievable in the short term.
Aluminum
Most Russian metal producers have so far escaped sanctions imposed by the West since Moscow annexed Crimea in 2014.
An exception is the world’s largest aluminum producer outside China, Rusal, which is subject to measures imposed by the United States between April 2018 and early 2019.
Rusal produced 3.8 million tons of aluminum in 2021, about 6% of the estimated world production.
Europe, Asia and North America are Rusal’s main markets. Miner and commodity trader Glencore has a long-term deal running until 2025 to buy primary aluminum from Rusal.
Cobalt
Data from the U.S. Geological Survey (USGS) shows Russia produced 7,600 tons of cobalt last year, more than 4% of the global total.
Russia was the second largest producer, far behind the Democratic Republic of Congo, which produced 120,000 tons.
Nornickel is the largest producer in Russia, selling 5,000 tons in 2021. Nornickel sells most of its output to Europe.
Copper
Russia produced 920,000 tons of refined copper last year, about 3.5% of the world total, according to USGS, of which Nornickel produced 406,841 tons.
Nickel
Nornickel is the world’s top producer of refined nickel. It produced 193,006 tons in 2021 or about 7% of global mine production estimated at 2.7 million tons. It sells to global industrial consumers under long-term contracts.
Palladium and platinum
Nornickel is also the world’s largest producer of palladium and a major producer of platinum.
It produced 2.6 million troy ounces of palladium last year or 40% of global mine production and 641,000 ounces of platinum or about 10% of total mine production.
Gold
Russia is the world’s third largest producer of gold after Australia and China and accounts for about 10% of global mine production, which according to the World Gold Council totalled 3,500 tons last year.
Titanium
Russia’s VSMPO-Avisma supplies titanium to Boeing and Airbus.
Data from USGS shows Russia produced 27,000 tons of titanium sponge and Ukraine 5,400 tons last year. Combined they account for about 15% of the global total.
Steel
Russia produced 76 million tonnes of steel or nearly 4% of the global total, according to the World Steel Association. Exports go mainly to Europe.
Severstal, NLMK, Evraz, MMK and Mechel are Russia’s main producers. They export about half of their production, mainly to Europe.
Diamonds
State-controlled Alrosa, the world’s largest producer of rough diamonds by volume, produced 32.4 million carats in 2021, about 30% of the global total.
Fertilizers
Russia is a major producer of potash-, phosphate- and nitrogen-containing fertilizers – crop and soil nutrients. It produces more than 50 million tons a year, 13% of the global total.
Includes Bloomberg and Reuters content.
Keyword: Putin attack on Ukraine also attacks the world's energy prices