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U.S. gas prices hit record highs following sanctions on Russia


If you drive a gasoline-powered car, you already know this, but we'll say it anyway - the war in Ukraine has pushed gasoline prices to record highs in the U.S., and it's rattled energy markets around the world. Russia is a major supplier of both crude oil and natural gas. President Biden ordered a boycott of Russian energy this past week, and Europeans are talking about reducing their dependence as well. We wanted to know more about the economics of this, so we asked NPR's Scott Horsley to help us understand it, and he is with us now. Scott, thank you so much for joining us.

SCOTT HORSLEY, BYLINE: Good afternoon. Good to be with you.

MARTIN: So first thing I wanted to know is why does the war affect gasoline prices in the U.S., especially so profoundly, if we don't buy much oil from Russia?

HORSLEY: Because oil is traded on a global market. So anything that affects supply and demand in one part of the world is rapidly reflected all around the globe. Now, you're right. Russia didn't sell much oil to the United States, but it did sell a good bit of oil to other countries. And the threat that supply might be cut off, either by the conflict itself or by sanctions, briefly pushed the global price of oil above $130 a barrel this past week. Most countries have not followed the Biden administration yet in officially boycotting Russian oil, but energy analyst Amy Myers Jaffe, who's at Tufts' Fletcher School, says a lot of shipping companies and refineries and the financial firms that back them are wary of getting involved in Russian oil right now. So that has rattled a market where supplies were already tight.

AMY MYERS JAFFE: We're definitely having a major oil shock. Russian oil would be very hard to replace. They're a big producer in the market, and the market's already seeing cargoes being turned down.

HORSLEY: And because the price of gasoline tracks closely with the price of crude oil, we did see pump prices climb to record highs this week, although we should note in inflation-adjusted terms, gasoline is still cheaper than it was back in 2008, the last time the price topped $4 a gallon.

MARTIN: Now, Republicans are blaming President Biden for high gas prices. Is there any credence to this? Have Biden's policies had an impact?

HORSLEY: You know, Republicans were blaming President Biden for high gas prices long before Russian troops started massing at the border with Ukraine. And it is true gasoline prices had gone up before the war, although the really big spike has come just in the last 10 days or so. Most of what was driving that earlier price increase was supply and demand. In the early days of the pandemic, nobody was driving, so oil and gas prices plummeted. Since then, demand bounced back sharply, but supply has not caught up. OPEC, Russia and domestic oil producers have been boosting production but only very slowly, and that's partly because American oil producers face some of the shortages of manpower and material that other businesses have been wrestling with. Mostly, though, it's a deliberate decision by oil companies and their investors not to boost supplies too much and flood the market and push down prices.

Now, to be sure, the oil industry does have some beefs with the Biden administration over policy. The industry would like more access to federal lands. They'd like looser environmental regulations. They'd like to see less emphasis on the cost of carbon pollution. But even with those Biden policies, the U.S. is the world's No. 1 producer of both oil and natural gas, and domestic oil production is expected to hit a record high next year.

MARTIN: Are there steps that the Biden administration could take to lower gas prices?

HORSLEY: There's not a whole lot the administration can do. It has been jawboning domestic oil producers to pump more. It's been urging the Saudis and others to do so. The Biden administration is even open to easing restrictions on rogue countries like Venezuela and Iran so they could put more oil on the world market. So all of that could make some difference but not overnight. The United States and its allies have also tapped their strategic oil reserves, but that has a pretty limited effect. So far, the 60 million barrels they've promised to release would supply less than one day of worldwide demand.

MARTIN: And what does this mean for more fuel-efficient vehicles or even alternatives to fossil fuels?

HORSLEY: When gas prices get this high, it generally does make people think a little more carefully about fuel economy if they're shopping for a new vehicle. It might make them shell out for an electric car. The Biden administration has reinstated higher fuel economy standards that were rolled back under President Trump. Biden is certainly trying to promote electric cars. In the longer term, that is a way to insulate American drivers from the whims of the global oil market and also to address climate change. But, you know, that is a strategy for the longer term. It's not going to lower gas prices this summer or before the midterm elections in November.

MARTIN: That is NPR's Scott Horsley. Scott, thank you so much.

HORSLEY: You're welcome.

(SOUNDBITE OF FUNSHINE'S "INTERLACE") Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.