How high could gas prices go as sanctions ratchet up on Russia?

Judy Woodruff:

As nations increase economic pressure on Russia, President Biden has warned that some of those moves could also end up hurting U.S. consumers, especially at the gas pump.

Gas prices are already high, further pinching consumers, who are also dealing with high inflation. So how big a hit might Americans take in the weeks and months ahead?

William Brangham has that story.

William Brangham:

Judy, nearly a week into Russia's invasion of Ukraine, global oil prices reached a peak, $113 a barrel. That's the highest price since 2014.

In the U.S., the national average for a gallon of gas is now $3.65. And there are questions now about how high those prices could go, as sanctions for Russia's invasion continue to ratchet up.

For more on all of this and what might be done to curtail the economic impacts, I'm joined by Bob McNally. He's the president of Rapidan Energy Group.

Bob McNally, great to have you back on the "NewsHour."

Broadly speaking, can you help us understand what is driving these prices up? Is this principally a response to Russia and Ukraine?

Bob McNally, President, Rapidan Energy Group:

You know, it's two things.

Before the Russian attack on Ukraine, oil prices had risen sharply, up from the $60 to the $90 range. And that was because the global oil market is tight. Demand has been quite strong. Supply has been lagging. Inventories are low. So that brought us from the 60s to the 90s. It's the invasion of Ukraine, and specifically the severe sanctions that were announced over the weekend, that startled the market and put another $10 into the price of crude oil, so that we're now at about $110 WTI.

William Brangham:

I mean, the U.S. and this global coalition seem to have a double-edged sword here. They want to inflict as much pain as possible on Russia and Vladimir Putin, but they don't want that pain to boomerang back onto their own societies.

Can they manage that balance? I mean, what are the levers that the West and this coalition have to protect their own citizens?

Bob McNally:

They're certainly trying to do so.

So, the first thing is to say, we're going to impose sanctions, but not on Russia's oil and gas exports, because those exports are so big that, if we do that, our own consumers will see higher prices. So they tried to take pains to say, we're not going to sanction Russia's oil exports.

The problem is, there's uncertainty about that. And traders today don't want to touch Russian crude. So that's number one.

The second is, as they announced yesterday, a withdrawal of strategic stocks from the IEA system. And that will help a little bit, not too much, in taking some of the edge off and dropping another 60 million barrels into the market.

But the only good option President Biden has really is to call up Saudi Arabia and UAE, and ask them to accelerate their production. He also — if he signs the Iran nuclear deal, he will get another bunch of oil that way as well. Iran's oil will go up by about a million barrels a day. So those are his real options.

William Brangham:

I mean, we saw OPEC Plus resist calls thus far for any further oil supply, the creation of more oil supply.

Is it your sense that, if they did pick up the phone to make those calls and exert that pressure, that it would be fruitful?

Bob McNally:

I think so.

I think if the president of the United States calls up the crown prince — and he's been reluctant to do so. For understandable reasons, he's been reluctant. But were here to do so, and put it on the line, if it were, not only with Saudi Arabia, but UAE, and say, this is a time to choose, this is a time to help not only the United States, but your broader consumers from China to Western Europe, there's a chance they would, yes, accelerate their increases in production.

William Brangham:

We have also seen major oil companies, BP most notably, saying that they're pulling their investments out of Russia.

Will that contribute to this problem? And will that also be an effective lever, do you think, against the Russians?

Bob McNally:

No, that's really a longer-term issue.

So, Exxon, pulling out of Sakhalin, BP, Equinor, Shell pulling out, they're pulling out of projects that are already operating, and they will do so carefully so that they don't disrupt production.

This is really something that will hurt Russian production in years to come. But, for now, and for the near coming — the forthcoming months and so forth, it's not really going to disrupt supplies.

William Brangham:

I mean, we are still early days in this and don't know how this invasion will play out or how much additional sanctions might be levied against the Russians.

What are you looking towards the future? What concerns you the most?

Bob McNally:

Well, and I do have concerns and I wish I had better news.

Unfortunately, I think crude oil prices, and, therefore, gasoline prices are going to keep rising until one of two things happens. Either authorities will make it very clear that Russia is not going to be blockaded or its oil exports aren't going to be cut off, or President Putin doesn't do it himself. So we have to remove the risk of that supply.

Or we're going to have a recession. But one of those two things apparently is going to happen. Otherwise, oil prices are going to continue rising. That's just the brutal math of the global oil market.

William Brangham:

And, I mean, is it your sense — I know you're not a political analyst, per se. But we know that Americans react very badly when gas prices go up. We have the midterm elections coming up.

I mean, you think that the president might be put in a situation where his efforts against Russia are really starting to hurt him domestically politically?

Bob McNally:

That's entirely possible.

I worked for President Bush, so I'm familiar with the political pressures a president is under on energy. And, absolutely, he's already under pressure. Oil prices, gasoline prices are up over 10 percent just since January, 67, 70 percent since November. So he's under enormous pressure.

And I think this is why President Biden, even today, the White House announced they're taking pains to try to avoid restricting Russia's oil exports, so they minimize the hike in oil prices and the pain on consumers,. But he can't control the global oil market. And it may be that the price of punishing Putin is pain for himself into the midterms, certainly.

William Brangham:

All right, Bob McNally, president of the Rapidan Energy Group, thanks so much for being here.

Bob McNally:

Thank you.