The interruption of Russian oil shipments, including the U.S. import ban President Biden announced Tuesday, represents one of the largest supply disruptions since World War II, according to Goldman Sachs. With other major oil producers unable or unwilling to increase output in the short run, the per-barrel price of Brent crude, the global benchmark, hit $128 earlier this week, up nearly 65 percent since Jan. 1.
After falling Wednesday on hopes for a negotiated settlement in Russia’s war on Ukraine, Brent slid further Thursday, closing just shy of $110. But the likelihood that oil prices will remain elevated for the rest of the year is expected to reshape consumer spending, weigh on financial markets and strain government budgets in dozens of countries.
Rising oil prices effectively redistribute income from oil-consuming nations in Europe and China to producers such as Saudi Arabia, Russia and Canada. As a group, producing nations spend less of each additional dollar than do consuming countries, meaning higher oil prices tend to reduce overall economic activity, Shearing said.
The price jump since Jan. 1 — if sustained for a full year — would transfer more than $1 trillion from consumers to producers. And that figure does not include petroleum products such as diesel, gasoline or fuel oil.
For the United States, higher prices are a mixed bag. Drivers fumed this week when the average price of a gallon of gasoline surged to a record $4.32. But the shale oil revolution has made the United States one of the world’s largest oil producers, so higher prices boost oil company profits and investor returns.
One oil stock index has gained 29 percent this year while the broader S&P 500 fell by more than 11 percent.
Still, Capital Economics says it would take oil prices of $200-plus to trigger a U.S. recession. One reason is that U.S. households together have an ample $2.5 trillion savings cushion, dwarfing the estimated $150 billion to $200 billion cost to consumers of higher pump prices, said Ian Shepherdson, chief economist of Pantheon Macroeconomics.