If you were hoping for much cheaper gas anytime soon, I have some bad news: Prices probably won’t drop much for at least a few months.
The causes of more expensive gas will most likely be with us for a while. After driving U.S. prices to more than $4 a gallon, Russia’s war in Ukraine continues with no clear end in sight. Producers so far seem unwilling, or unable, to pump out enough supply to fill the gap caused by the war.
When I asked whether any good short-term solutions exist, Tom Kloza, global head of energy analysis at the Oil Price Information Service, gave a simple answer: “No.”
For Americans, the immediate effect is that life will simply cost more. We will pay more when we fill up our gas tanks or pay energy bills in the next few weeks or months. The price of many other goods will go up, because so many things — food, iPhones, PlayStations, cars — must be transported at one point or another by a truck, a boat or a plane burning fossil fuels.
Higher fuel prices have broader consequences, too. A push to drill more oil and natural gas, or to more aggressively pursue alternative energy sources, could affect climate change (in good or bad ways). A public angry over the cost of living could protest or vote out the politicians in power. People in the U.S. and other countries aiding Ukraine could begin to wonder whether their support is worth pricier gasoline and other goods.
With the Covid pandemic’s retreat, many of us wanted — and expected — some sense of relief after two awful years. Higher gas prices, and broader inflation trends, work against that, as if we are merely trading one crisis for another. And just as with the pandemic, no clear end is in sight.
But supply has not kept pace, much like strained supply lines have raised food prices and impaired the flow of cars, electronics and other goods. By turning much of the world against a major oil and gas producer in Russia, the war in Ukraine only made supply problems worse.
Some of the supply issues are by design. OPEC Plus, a cartel of oil-producing countries that includes Russia, has worked to keep prices — and therefore profits — as high as possible by limiting supply. The cartel has held fast to its approach.
But it is not just OPEC. American oil companies have deliberately slowed production after a pair of recent fracking boom-and-bust cycles left them with a glut of supply and plummeting prices. “We’re having the third boom, and these executives don’t want to have the third bust,” Kloza said.
All of that leaves few good solutions in the short term. Even if public pressure or a strained market eventually pushes producers to drill more, new production can take months to spin up, especially given labor and supply shortages. And even if U.S. producers step up, OPEC Plus could decide to cut back — to keep prices high.
Other potential solutions that lawmakers have mentioned or enacted, like a gas tax holiday or direct cash relief, could make inflation worse by putting more money in people’s pockets and keeping demand high without necessarily increasing supply. “We’re not in a position to help households right now because it would cause more inflation,” Jason Furman, an economist at Harvard, told me.
Meanwhile, some experts suggested that the best chance of a quick decline in gas prices is an outcome nobody wants: a new Covid variant or a recession tanking the economy and demand.
A cascading problem
Gas prices tend to get disproportionate attention compared to their actual economic impact, Furman said.
One reason for that: The cost of gas is incredibly transparent, posted on giant signs across the country. The visibility can make rising gas prices a symbol for broader inflation trends.
Rachel Ziemba, an energy expert at the Center for a New American Security, said she was worried that higher gas prices will cause social and political instability. Around the world, inflation has already prompted protests and even riots. Higher gas prices in particular have historically led to lower presidential approval ratings, as voters blame those in charge for inflation and bad economic conditions.
Some experts worry that higher gas prices will eventually hurt Western resolve against Russia, if Americans and Europeans start to ask whether supporting Ukraine is worth the price. Recent polls suggest the public is willing to make some sacrifices for the war effort, but polling also shows increasing discontent with inflation.
So the consequences of rising gas prices are not just to your wallet, but also possibly geopolitical.
War in Ukraine
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