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Energy: Oil prices wreak economic havoc worldwide

Is Russia responsible for current gas prices?

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A graphic designer in San Francisco is cutting back on dining out. A motorcycle taxi driver in Vietnam turns off his ride-hailing app rather than burn fuel during rush hour. A retiree in Germany says he is ready to give up his car. Around the world, consumers are feeling the sting from soaring gas prices, said Daniel Niemann in The Associated Press. For the first time, the average cost for a gallon of gasoline in the U.S. was over $5 last week, and it's worse in much of the world: a gallon would cost you more than $10 in Hong Kong, $7.50 in Germany, and $8 in France. Gasoline has been "a key driver of inflation," and it's already changing spending habits. Much of the blame has been pinned on Russia's invasion of Ukraine, which "jolted energy markets that were already facing tight supplies."

The global oil industry also completely underestimated "the speed with which demand" would rebound after the pandemic, said Irina Slav at OilPrice, "and how resilient this demand would be." Russia's invasion of Ukraine was certainly a massive "wild card" for the oil markets, but "even the known cards have refused to play into the assumptions by analysts." OPEC, the 13-nation oil cartel, has missed its own quotas, while "pent-up post-COVID demand" has been stubbornly resistant to high prices, creating "a perfect oil storm." Oil traders are waging heavily on gas prices remaining elevated into next year, said Javier Blas in Bloomberg. "The refining sector represents another problem," because "the world has effectively run out of space to turn crude into usable fuels." A global pivot away from fossil fuels has left owners wary of restarting operations or making costly upgrades. The shortage of refiners means that consumers are paying even more "to fill their tanks than oil prices suggest." 

Meanwhile, oil money keeps flowing into Russia's coffers at a blistering pace, said Bryan Pietsch and Ellen Francis in The Washington Post. Moves by Western powers to ban Russian oil imports were supposed to be crippling. Instead, while "the volume of Russia's fuel exports fell 15 percent in May compared with the period before the invasion," sky-high oil prices mean "Russia may be making more revenue." The Center for Research on Energy and Clean Air recently found that Russia made $97 billion from fossil-fuel exports in the first 100 days of the war, and its export prices "were on average 60 percent higher than last year." 

No president can do much to control oil prices, but President Biden "has to try," said Clifford Krauss in The New York Times. He will meet Crown Prince Mohammed bin Salman in Saudi Arabia in July, a trip that's painfully reminiscent of Jimmy Carter's flight "to Tehran in 1977 to exchange toasts with the shah of Iran." The White House has "also been in talks with Venezuela and Iran." Any deal with either country is "politically perilous." But it's the rock or the hard place for Biden, knowing voters are just as likely to "turn against presidents who seem unwilling or unable to bring" gas prices down.

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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