The cost of oil has surpassed $106 in the United States, setting the price of gas at a seven-year high, all together constituting a more than 10 percent rise in the cost of fuel.
After Russia’s recent invasion of Ukraine, the economic sanctions imposed by the United States in cooperation with Europe have resulted in scarcity in the global supply of fossil fuels, with Europe cutting off its Russian suppliers and consequently having to rely on the same suppliers as the United States, causing domestic oil prices to surge.
Even before the invasion and its ripple effects on the global energy supply, fuel price inflation was significantly outpacing general inflation, which recently reached its highest levels since the early 1980s. But while the most recent Consumer Price Index reports inflation at 7.5 percent in the past year, fuel prices had risen by 40 percent from February 2021 to January 2022, according to the Bureau of Labor Statistics—even before recent geopolitical developments had accelerated the trend.
Overall, the fossil fuel industry is following a natural cycle between periods of oil abundance and oil scarcity, and consumers are now suffering from years-old developments in the industry. During periods of oil abundance, companies tend to under-emphasize developing new infrastructure for oil extraction, allowing their investors to collect profits at higher margins.
However, the reckoning for these profit margins arrives with periods of oil scarcity—often lasting years at a time—in which companies hastily expand drilling infrastructure in order to meet demand. After a period of oil abundance in the late 2010s, some people believe we may be entering a period of oil scarcity in this perennial cycle, causing oil prices to rise as a result.
These ordinary trends are exacerbated by particular features of the current decade, in particular a recent emphasis on renewable energy that makes careers in the oil industry unappealing for many young people who might otherwise be drawn to them. As a result, the industry has suffered from a labor shortage disproportionate to that of the general labor force, with many companies calling in retired former employees to fill specialized roles left unattended by young oil workers.
The immediate consequence of this price increase will be an additional financial burden on people who drive, one that will disproportionately hurt the more car-dependent urban and rural areas of the United States.
Even for those who don’t drive, the strain of gas prices will be felt as a consequence of higher shipping costs. As companies are forced to pay more for shipping, they'll almost certainly pass these costs to some degree to consumers, causing prices on nearly all shipped goods to rise. Including necessities such as food, toiletries, and medicine, this additional burden will apply to nearly everyone.
While the complex geopolitical situation in Eastern Europe remains a challenge for the United States, the consequences of Russian President Vladimir Putin’s invasion and the West’s response are already being felt by consumers around the world.
