Feb 23, 2022 - Economy

Russia-Ukraine crisis opens new era of petro politics

Illustration of a hand smashing a puddle of oil.

Illustration: Annelise Capossela/Axios

Russia's invasion of Ukraine could mark the start of a new era of petro politics, an uncomfortable parallel to the last inflationary period America faced.

Why it matters: Americans are likely to continue to face rising energy prices in the coming months, as Russia — the world's third-largest crude oil producer and largest natural gas producer — faces the prospect of sanctions.

Driving the news: Germany halted the process of certifying the Nord Stream 2 pipeline built at great expense to bring natural gas directly from Russia, following the invasion. And President Biden announced his first round of sanctions on banks, Russian government bonds and individuals close to Russian President Vladimir Putin.

Context: Energy markets are global. High prices in Europe — where Russia is a major supplier of oil and natural gas — are acting as magnets pulling American supplies to the continent.

By the numbers: In January, U.S. consumer energy prices — a broad category — were up 27% from the prior year.

  • Gasoline was up 40%.
  • Fuel oil was up 46.5%.
  • Utility gas prices were up 23.9%.

Between the lines: Energy supplies have been tight all year as global demand rebounds from the pandemic — and cold weather in the U.S. prompted a surge in natural gas prices earlier this year. But soaring prices are also being driven by political decisions, like Russia’s invasion of a sovereign state and the West's willingness to punish those actions.

  • Interestingly, the previous period of inflation came in the aftermath of the OPEC oil embargo of the 1970s, perhaps the last time we've seen such political pressures on energy markets.

Our thought bubble: The new era of petro politics doesn't mean we'll have the nightmarish gasoline shortages that were common during the ’70s embargo. But the geopolitical dynamics could add another degree of difficulty to containing the price pressures that have pushed inflation to a 40-year high.

The bottom line: "Geopolitics is back into energy, and energy is back into geopolitics, in a way that hasn't been the case since the 1970s," Daniel Yergin, Pulitzer Prize-winning author and historian focused on global energy markets, tells Axios.

Go deeper: How Congress is reacting to Biden’s new Russia sanctions

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