Gas Prices Were Already Rising Before Russia Invaded Ukraine. What’s Next?

With the national average for a gallon of gas now a record-breaking $4.17 per gallon, filling your tank will increasingly strain your budget—and affect your other expenses, too.

The Russian invasion of Ukraine that began in February is expected to push gas prices even higher than they’ve been trending over the last few months. President Joe Biden announced today that the U.S. will ban imports of oil, natural gas, coal and some petroleum products from Russia.

“A rise in gas demand, alongside a drop in total supply, is contributing to higher pump prices. However, increasing oil prices play the lead role in pushing gas prices higher,” an AAA spokesperson told Forbes Advisor by email. “Pump prices will likely continue to rise as crude prices continue to climb.”

Ahead of the international crisis, Americans had already been facing higher costs at the pump due in large part to a return to the road after Covid lockdowns. In late 2021, President Joe Biden moved to release some oil reserves to push down prices.

But the situation in Eastern Europe has negated those efforts. . While the national average for a gallon of gas was $3.41 in December, the national average on Feb. 25, the day after Russia invaded Ukraine, reached $3.57, according to AAA.

Akshay Rao, professor of marketing at the University of Minnesota Carlson School of Management, says it’s impossible to tell at this point exactly how high gas prices will get.

An increase of 10 or 20 cents per gallon may not seem like a lot compared to other aspects of your budget that have been rising due to inflation, like housing. But seeing the number at the pump tick up when you fill your tank once or twice a week makes it something you notice acutely, Rao says.

“Nobody likes to buy gasoline,” he says. But rising gas prices affect the entire larger economy, he warns, and signal increases you’ll see in other categories, like groceries.

Why Gas Prices Are Rising in This Early Stage of the Ukraine Invasion

According to estimates from J.P. Morgan, Russia supplies about 12% of the world’s oil supply, which is used to make gasoline, Rao explains. Without that supply source, countries like the U.S. must turn to other options. The U.S. produces one-fifth of the world’s oil supply, which allows the nation to cut off Russian imports with relative ease.

But overall, there’s still less supply to go around. AAA notes Energy Information Administration (EIA) data that there’s about 15% less crude oil available now compared to the end of February.

This is why we’re already seeing prices peak at the pump.

“What would you do if you run a gas station?” Rao asks. “Rational, forward-thinking gas stations will increase prices in anticipation of their raw materials increasing in price.”

And it’s not just gas station operators who are making moves. Any industry that ships products is likely to raise prices to anticipate higher transportation costs. So gas prices rising due to international conflict isn’t just about a pinch at the pump—it could impact your entire bottom line.

For many Americans, the inflation we’ve seen due to supply and demand imbalances and supply chain logjams has already put pressure on their budgets. The personal savings rate in the U.S. has dipped below pre-pandemic levels, indicating that Americans have less to stash away after paying their bills each month.

And without previous stimulus measures like the monthly child tax credit payments, many households may need to revisit their budgets to make do for the time being (pending tax refunds notwithstanding).

While a group of Democrats in the Senate has proposed a gas tax holiday through 2022 to ease the pain for consumers at the pump, it hasn’t gained traction on Capitol Hill.

Read more: How To Budget For Inflation

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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