Local Economist Reacts to Oil Import Sanctions, Impact on Economy
On Tuesday, Governor Gretchen Whitmer and five other governors asked Congress to repeal the federal gas tax for the rest of the year, while President Biden committed to releasing oil from the strategic reserve to lower gas prices.
“Go back a year ago, gasoline was about $2.75 a gallon and oil was hovering around $60. Most of the price increase to date is due to inflation,” said Director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University Midland, Dr. Tim Nash. “We printed a lot of money to get us through the pandemic, and we’re seeing those those higher prices. That wasn’t just the Biden administration that was also the Trump administration.”
Even though the U.S. imports around 670,000 barrels of oil a day from Russia, the President’s newest sanctions on Russian oil could affect more than just the U.S.
“Remember, oil prices are world prices,” said Nash. “It’s not just what happens in the United States, it’s what happens around the world that drives up the overall price for oil and thus, the global oil prices.”
With higher oil prices comes a domino effect on industries such as trucking.
“The average price for a gallon of diesel fuel is now $4.76 a gallon,” said Nash. “It’s going to cost more to truck, and as it costs more to truck anything that you’ve sent by truck, trucking is at least going to go up a little price a little bit.”
Products like pharmaceutical packaging, car parts and toiletries that have petroleum-based items could also raise in price, according to Nash.
“It’s not just the fact that the estimate right now is the average family, at the current price, is paying $2,000 more a year for gasoline, but think of all the other items that are impacted by the trucker having to charge more because of higher diesel fuel prices,” he said.
Bank of America says if the conflict continues for another three to four weeks, they believe oil could hit $200 a barrel.
If overall GDP declines, Nash said the U.S. could be in a recession.
“Even though we had a good last month for jobs, the Federal Reserve Bank of Atlanta, which has the GDP forecasting model, they’re calling for U.S. GDP to be down dramatically from the fourth quarter of 2021 to the first quarter of 2022,” said Nash. “We’re saying that we could easily see a recession by the end of the year.”