Russia-Ukraine war: why are oil prices increasing?
By Varun Bodhi
Russia’s conflict with Ukraine has driven petrol prices to a record level nationally and crude oil has peaked up to US $139 per barrel, marking the highest cost the natural resource has ever been since 2008.
Although Australia is about as far as it gets from Ukraine, the ramifications of the war are being experienced by everyone and those commuting to work will be the first to notice the change in their pockets.
Why does the invasion impact the price of oil?
After Saudi Arabia, the world’s second largest exporter of crude oil is Russia. According to World’s Top Exports, Russia exported $72.6 billion worth of crude oil in 2020.
The nation exports approximately five million barrels per day and is a gas powerhouse within Europe, supplying up to 40 percent of the continent’s gas needs.
Regardless of many countries and their people condemning Russia’s actions, along with the strong momentum for ‘stand with Ukraine’, consumers are unknowingly funding Russia’s efforts.
Brussels-based NGO Transport & Environment reports that Russia is cashing in $285 million every day from European oil sales. This creates a moral dilemma where the ordinary person may disagree with Russia, but are indirectly supporting their movement and will have to continue to do so because of the limited fuel options.
Events like this also perpetuate the need for renewables and alternatives, especially when buyers and shippers are refusing to handle Russian oil.
How does it affect commuting?
The bottom line is, all forms of transport become pricey.
Everyone who visits a petrol pump will notice the immediate jump in price, with Australia forecasting around $2.50 a litre in the coming weeks due to the international sanctions against Russia. According to Commsec, the average household is now spending close to $250 a month on fuel.
Air travel which had become significantly cheaper to encourage flights after the financial strain from Covid may also witness a price surge. This is because around 40 percent of airline operational costs are fuel related.
All goods transported by trucks will become more expensive as businesses adjust to the new costs of road transport.
For the general public, there is uncertainty on how high the prices will go and how long the fluctuation will last for.
Does the Ukraine invasion only impact the oil industry?
Unfortunately, the shockwaves from the invasion stems across many other industries other than oil.
The technology industry is another major sector which will take a hit. In 2021, Ukraine had exported $6.8 billion worth of IT services. The industry was steadily increasing and starting to contribute more towards its GDP.
Ukraine is responsible for 90 percent of USA’s semiconductor-grade neon supplies and Russia sources 45 percent of the world's palladium. These are some really high numbers for important resources which will now be more difficult to access.
Other essential commodities that have been effected are energy, food, transport and metals.
Tragically, the impacts that this war will have is evident for the people of Ukraine, however the global implications are only just starting to reveal themselves.
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