Times Chronicle & Public Spirit
War’s impact at home
The Russian invasion is already leading to higher gas prices and increased inflation
The story of the Ukrainian people and their valiant, ongoing stand against Russian invaders is one that has gripped the Western world.
Images of the war have been plastered on the front page of newspapers and have filled television and computer screens. They show scenes of bloodied and battered civilians, of cold and tired refugees fleeing the country on foot, of everyday citizens bravely taking up arms.
Support for Ukraine has been strong in the U.S. The general public has expressed admiration for the country’s leaders and people, feeling their fight is morally just and heroic.
The U.S. government has, likewise, gotten behind the efforts of Ukraine. It has offered assistance in a variety of ways, including issuing sanctions on Russia and helping provide weapons to Ukraine.
But with each act of support for Ukraine comes a warning: What is going on in Eastern Europe will have an impact on the U.S.
In particular, on the economy. Gas prices are high, and the cost of things like groceries has skyrocketed.
It can seem a trivial thing to think about money when people are desperately fighting for their lives. The sacrifices and challenges facing Americans pale in comparison to those of the Ukrainian people.
However, they do still exist. And for many Americans already struggling to get by after two years of devastation caused by the COVID-19 pandemic, they will matter.
Just how much they will matter and how long they’ll last, that isn’t exactly clear.
MediaNews Group spoke to a group of experts to try to get a picture of what the war in Ukraine will mean for people in the U.S. and to get a sense of whether the conflict’s financial impact will change public perception.
Paying more at the pump
Russia’s invasion of Ukraine has put a strain on an already struggling oil supply and sent prices skyward for consumers.
While drivers haven’t again had to endure the gas rationing and aroundthe-block lines at the pumps that the 1973 and 1979 oil shortages brought to the U.S., prices in recent weeks have caused a financial sting for many.
The cost for gas already has hit record highs in the region and across the country, having risen about 60 cents in the last 10 days to an average of $4.46 in the region, $4.43 in Pennsylvania and $4.33 nationally on Friday, according to AAA.
Earlier in the week Gasbuddy.com forecast that prices will continue to rise — with the price per gallon likely reaching a national average of $4.50 in the coming weeks — but that the sharp increases we’ve recently seen should slow down.
In addition, the national average for a gallon of heating oil was $4.92 last week, up almost 20% from $4.05 the previous week, according to the federal Energy Information Administration.
Though President Joe Biden on Tuesday signed an executive order banning imports of Russian oil and oil products, that move had been anticipated and had already pushed up prices, so it didn’t cause much more of a change, GasBuddy’s head of petroleum analysis Patrick DeHaan said.
In addition, the U.S. only gets about 7% of its oil from Russia, but about 40% of the oil imported by the European Union comes from Russia. So while an EU ban on oil is not anticipated, if it happened it could cause oil prices to rise from $125 per barrel to $175 or $200 and would dramatically raise gas prices, DeHaan said.
In the latest weekly shortterm energy outlook released by the U.S. Energy Information Administration, analysts said the skyrocketing prices began largely due to the U.S. and global economies recovering from the pandemic, which drove up demand.
Uncertainty and sanctions on Russia following the invasion occurred during a time of already low inventory levels, which have amplified oil price volatility and contributed to high prices, the EIA said.
DeHaan too said that higher demand and lower supply are the main drivers of the current price increases, as is historically the case.
To counter the high prices at the pump, Pennsylvania Gov. Tom Wolf is among six Democratic governors who’ve sent a joint letter to congressional leaders seeking legislation to suspend the federal 18.4-cent-a-gallon gas tax through 2022.
Also, Republican legislative leaders in Pennsylvania and Michigan announced proposals Wednesday to suspend or reduce state gas taxes. Pennsylvania’s 57.6-cent-a-gallon gas tax is the highest in the nation.
Critics of the proposals say there is no guarantee the savings would get passed on to consumers and worry that suspending gas taxes could hurt funding for road projects, according to an Associated Press article.
The EIA predicted that during the second quarter of 2022 a gallon of unleaded gas will average $4.10 nationally, decreasing to $3.88 in the third quarter and $3.54 in the fourth quarter.
The average gallon of heating oil will be $4.04 nationally in the second quarter, decreasing to $3.76 and $3.66 in the third and fourth quarters, respectively, analysts said.
But the EIA acknowledged nothing is definite.
“We expect global oil production in 2022 will increase to the point of beginning to restore depleted global inventories, which could contribute to some declines in crude oil prices,” the report said. “However, the Russian action in Ukraine and the global response to it make these forecasts highly uncertain.”
A ripple effect
Before Russian forces crossed the border into Ukraine, there were signs the U.S. economy was headed in the right direction.
Dr. Farhad Saboori, an economics professor at Albright College, said that prior to the invasion things were relatively on track. The Federal Reserve had predicted the inflation the U.S. was seeing was transient, saying it was related to COVID and would ease as the pandemic waned.
That appeared to be true, Saboori said, and it was likely inflation rates would soon be shrinking as the number of COVID cases across the country dwindled.
The situation in Ukraine derailed that.
“Like everything in life, the unexpected happened,” Saboori said. “That changed the calculus.”
Instead of seeing improved inflation numbers, the U.S instead saw inflation rise to nearly 8% last week. That number is historically very, very high, Saboori said.
Inflation has been driven by oil prices, Saboori said. But its impact isn’t just felt there.
Oil prices have a ripple effect throughout the economy, and when they rise they bring pretty much everything else with them. That’s because higher oil prices create higher shipping and transportation costs, which will in turn result in higher prices for consumer goods.
“Oil impacts almost every aspect of life,” Saboori said. “That’s one more reason to wean ourselves off of our addiction to fossil fuels.”
Inflation that occurred during the pandemic was largely created by supply chain disruptions, which made it hard for stores to get enough products to keep their shelves stocked. But most of those issues have been resolved, which created hope that inflation would ease, Saboori said.
Rising oil prices dashed those hopes.
Another factor leading to higher prices is that many Americans, bolstered by COVID stimulus payments, are ready to shop. In particular middle- and upper-class families.
“Clearly, Americans are spending more, they are planning to spend more,” Saboori said.
That has created a level of demand that is supporting higher prices on everything from cars to groceries to clothing.
While things might seem troublesome at the moment, Saboori expressed optimism about the future. He said the federal government can use monetary and fiscal policies to help lower inflation.
For example, he said, the Federal Reserve is expected at its next meeting to raise the federal funds rate, which is the interest rate banks charge each other for overnight loans. That will lead to overall higher interest rates.
Saboori said that while the government can’t produce miracles, it can help to calm consumers.
“When people panic they begin to hoard,” he explained.
Saboori also said he is hopeful actions will be taken over the next few months to help counter rising gas prices. He said oil producers such as Saudi Arabia and Venezuela can ramp up production, which will help lower prices.
So far oil producers, in particular Saudi Arabia, have refused such a move, but Saboori said he thinks they will eventually relent.
The other factor that will play into the economic situation in the U.S. is how Russia proceeds in Ukraine.
“It’s an extremely uncertain situation,” he said.
Sanctions that have crippled the Russian economy could cause Russian President Vladimir Putin to rethink his actions, Saboori said. Add in the ongoing coverage of the invasion and it will hopefully create an environment of shame and pain for Russia, he said.
“It’s quite possible the sanctions would convince Putin to slow down or stop,” Saboori said. “Any decision to slow down the invasion would bring stability to the economy.
“There’s no question that has to happen. War like this can’t go on for too long. Russia can’t keep adding fuel to this situation and get away with it.”
If things do begin to change and oil prices and inflation begin to recede, one worry is that the economy overcorrects and slips into a recession. Saboori said he doesn’t think that should be a major concern.
“That’s always a possibility,” he said. “But if you look back to the great recession of 2007 and 2008, our economy has changed since then. It’s changed for the better, I think.”
Saboori said the U.S. economy is more flexible and resilient today, and businesses have become more savvy. And, he said, he has increased confidence in the country’s monetary policy.
As for how the people of the U.S. will react to the economic turmoil the war in Ukraine is creating, Saboori said that depends on how long it lasts. At the moment it’s just a temporary glitch, he said, but if it drags, public opinion may shift.
“If this keeps going for another two weeks, a month, two months, people will become less empathetic,” he said. “People tend to look and feel locally. There is pain, and that pain will begin to show itself.”
The political price
So far, the American people are holding strong behind Ukraine despite the economic ramifications.
While prices are soaring and inflation continues to rise, recent opinion polls show that Americans overwhelmingly favor increased economic sanctions against Russia and broadly endorse further action to stop its invasion of Ukraine.
That includes supporting the move to stop buying Russian oil.
One of those polls, conducted by Reuters, found that 80% of Americans said the U.S. should stop purchasing Russian oil with the sentiment being shared pretty equally among Republicans and Democrats.
That same survey found that some 62% of those respondents said paying more for fuel and gas because of the crisis was worthwhile to defend another democratic country.
And it showed that the president is getting better marks for his handling of the crisis, with his approval rating jumping to 45% from 34% over a period of one week.
Berwood Yost, director of the Center for Opinion Research at Franklin & Marshall College in Lancaster, is not surprised by the findings. He said the images and stories of the brave Ukrainian people fighting for their survival are going to have a profound impact on Americans.
“Death, destruction and the total disregard for freedom goes against our shared values no matter who you are,” he said. “Those issues run across the political spectrum and I think that is the reason we see such broad support. The effort in Ukraine is something that people can really rally behind.”
Yost said the horrific scenes coming out of Ukraine have shocked the world and provided an emotional
connection to their fight for democracy to the point where people are willing to make personal sacrifices.
“Our sacrifices pale in comparison to how the Ukrainian people are suffering,” he said, noting he was still reeling from an image he saw of a pregnant woman being carried from a maternity hospital that had been bombed by Russian forces. “It’s just horrific.”
But it’s unclear how long that will last. The question is whether there is a point where financial strain and partisan politics fractures the united support for Ukraine.
“If we continue to see bipartisan support for these sanctions, I think the support among people will remain high,” he said. “But when the political parties start to diverge, public opinion will diverge. And we won’t have the unanimity that we’re seeing now.”
Yost said that right now it’s hard to envision what might drive that division, but he pointed out that politicians are searching for advantages and looking to draw contrasts, especially with congressional elections right around the corner.
“At some point, the parties will criticize each other in a way that will lead to partisan changes in perception,” he said. “But I don’t know how long that will take — I don’t think anyone does.”
Yost said the continued unity will also depend on the economy.
“People are very concerned right now about their personal finances,” he said. “And when it comes to inflation and economic concerns, gas prices are one of the main indicators of how things are going. If those numbers continue to go up, there is bound to be a backlash at some point.”
Yost said that backlash could come if the situation in Ukraine continues without any visible signs that Russia is feeling the impact of these sanctions. But, he added, how long the American people are willing to wait for that to happen remains a mystery.