As of noon Eastern Time on Wednesday, oil prices are down nearly $8 a barrel from the close of day on Tuesday. That change essentially undoes increases over the last three days, and shows that U.S. and U.K. restrictions on Russian oil were already largely worked into world prices. Far from predicting $300 / barrel oil, as Russia warned prior to U.S. action, the futures contracts now indicate a steady decline in prices, with prices at the end of the year falling below $90 a barrel. That would put the price of oil back where it was at the beginning of February, weeks before Russia actually invaded. Should prices stay where they are, or continue down, prices at the pump in the U.S. could begin to fall by next week, and the increase in cost of consumer goods can be expected to be more muted than some media analysts have been warning.
In Europe, and particularly in Germany, Italy, Hungary, and other nations heavily dependent on Russian natural gas, the fiscal impact of the Russian invasion has been much greater. Not only are they seeing the same level of increases in transportation fuel, but natural gas prices have increased sharply—up 79% in the last week alone. Just on Tuesday, prices went up 33% to 285 Euros per megawatt hour. Future contracts for the summer are lower, trading at around 210 Euros, but just last year, the price of natural gas was closer to 15 Euros / megawatt hour. That’s a massive, order of magnitude increase. When it comes to bearing the economic weight of this war, Europe is shouldering a much greater burden than the U.S.
Then there’s the Middle East. Obviously, many of the countries in the region aren’t hurting for oil or gas, but they do need wheat, and many of them get it from Russia. That includes more than half the wheat coming into Lebanon and two-thirds of what Egypt imports. There are also nations like Saudi Arabia which doesn’t import much Russian wheat, but that’s because they have their own dedicated farms scattered around the world — about a quarter of which are in Ukraine. Considering the past, current, and future behavior of Mohammed bin Jackass, the Saudis don’t actually get a lot of sympathy, but there are a lot of nations where lack of wheat from Russia and Ukraine is going to be a very big deal. To see what kind of impact that’s already having, check out this article from Farm Policy News, which describes a “crazed cash market,” with prices in the U.S. already up over 40% from last year and a market in near chaos. The Middle East is going to be paying a lot more for bread. So will we.
But none of these costs come close to the impact that the sanctions are already having in Russia. The average Russian has already seen their life savings reduced in value by over a third, and their now losing what’s left at a rate of about 10% a day. Russia is headed for what could be the biggest inflation spike in a century. Those old images from Weimar Germany, with people carting around shopping carts full of Marks to bring home a loaf of bread? Russia isn’t quite there, but with the ruble crashing, interest rates doubling, and the cost of every day items going up more in a week than what U.S. media markets just got through wringing their hands over in a year, the biggest damage being done by Russian sanctions is being done … in Russia. Which is good. Because that was the idea.
Russia’s economy is going to be absolutely pulverized by the sanctions. For Russians, who were already the next-to-poorest nation in terms of individual wealth in all of Europe (exception: Ukraine). The median average wealth by individual in the U.S. was $79,274 in 2021—a number that would put the U.S. near the bottom when matched against E.U. nations—but the median wealth in Russia before the invasion was $5,431. Now, chop off a third, then start squeezing. For the average Russian, this war is going to be the difference between being poor, and being grindingly, horribly impoverished.
When Vladimir Putin says that sanctions are tantamount to acts of war, he’s making it clear that all the pussyfooting around what’s a defensive weapon, what’s an offensive weapon, and what would make a nation a “co-combatant” are pretty meaningless. As far as Russia is concerned, this already is World War III. As far as the use of nuclear weapons, everyone already has their butt hanging over the line.
That doesn’t mean “Screw it, let’s just go all in...” It does mean, “Hey, maybe we better think of a way out.” Over the course of the war, Ukrainian President Volodomyr Zelenskyy has occasionally stated that he was open to solutions that many in the West might not find great solutions — including deals in which Ukraine would agree not to join NATO, or where some form of autonomy might be given to the regions in eastern Ukraine that Russia declared as tiny “republics.”
Zelenskyy knows that an end to this — and end that doesn’t involve everyone calculating how many strontium isotopes are in their food for the next three generations — has to be one that doesn’t leave Russia, and specifically Putin, so humiliated that they feel like their being constantly kicked and laughed at by the rest of the word. What that deal looks like exactly isn’t clear. But someone better work it out before Putin decides that a few tactical nukes aren’t just the message he needs to get people to back down from those sanctions.
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