{"id":28799,"date":"2022-02-24T01:31:00","date_gmt":"2022-02-24T01:31:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=28799"},"modified":"2022-03-01T00:28:22","modified_gmt":"2022-03-01T00:28:22","slug":"americas-cost-of-defending-freedom-in-ukraine-higher-food-and-gas-prices-and-an-increased-risk-of-recession","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/americas-cost-of-defending-freedom-in-ukraine-higher-food-and-gas-prices-and-an-increased-risk-of-recession\/","title":{"rendered":"America\u2019s cost of \u2018defending freedom\u2019 in Ukraine: Higher food and gas prices and an increased risk of recession"},"content":{"rendered":"\n

William Hauk<\/a>, University of South Carolina<\/a><\/em><\/p>\n\n\n\n

Americans may be tempted to view the war in Ukraine as an unfortunate, but far away, crisis. As an economist<\/a>, I know the world is too connected for the U.S. to go unaffected.<\/p>\n\n\n\n

On Feb. 22, 2022, President Joe Biden warned Americans<\/a> that a Russian invasion of Ukraine \u2013 and U.S. efforts to thwart or punish it \u2013 would come with a price tag.<\/p>\n\n\n\n

\u201cDefending freedom will have costs, for us as well and here at home,\u201d Biden said. \u201cWe need to be honest about that.\u201d His statement came one day before Russian President Vladimir Putin ordered an attack<\/a> on targets throughout Ukraine, including western parts of the country.<\/p>\n\n\n\n

Now that war has broken out, the biggest costs for the U.S. will likely be in higher prices<\/a> \u2013 on top of what is already the fastest pace of inflation<\/a> in 40 years.<\/p>\n\n\n\n

How much worse inflation could get will depend on how far Putin goes, the severity of the sanctions<\/a> placed on Russia and how long the crisis lasts. Will Putin cut off oil or gas to Europe? Will the invasion thoroughly disrupt Ukraine\u2019s ability to export food and other products to the rest of the world?<\/p>\n\n\n\n

We do know that Russia is one of the world\u2019s biggest energy exporters<\/a> and Ukraine\u2019s nickname<\/a> is the \u201cbreadbasket of Europe.\u201d And beyond that, the crisis has been rattling markets for months, sending the price of oil and other commodities soaring<\/a>.<\/p>\n\n\n\n

These higher prices will ripple through Europe, of course, but many other countries as well, including the U.S. \u2013 which will make the Federal Reserve\u2019s job of fighting inflation a lot harder and pose a bigger threat to the economy.<\/p>\n\n\n\n

Pain at the pump<\/h2>\n\n\n\n

The most obvious costs to Americans will be at the gas pump.<\/p>\n\n\n\n

Russia produces approximately 12% of the world\u2019s oil<\/a> and 17% of its natural gas. That makes it the world\u2019s third-biggest producer of oil<\/a> and second-largest for gas. It\u2019s also the biggest supplier of natural gas to Europe, which gets nearly half of its supply<\/a> from Russia.<\/p>\n\n\n\n

The risk is that Russia might cut off gas or oil supplies<\/a> to Europe or other countries that issue sanctions or otherwise condemn its actions in Ukraine.<\/p>\n\n\n\n

Europe may face the most immediate effects if some of Russia\u2019s energy supplies are removed from the world market \u2013 which is why the U.S. has been trying to assure<\/a> its allies it can supply them with liquid natural gas to make up for any shortfall. But world petroleum markets tend to be highly integrated<\/a>, so the U.S. won\u2019t be immune.<\/p>\n\n\n\n

The crisis has already driven up the price of oil to the highest level since 2014<\/a>, when Russia annexed Crimea from Ukraine, pushing up average gasoline prices in the U.S.<\/a> to over US$3.50 a gallon.<\/p>\n\n\n\n

The most serious sanction implemented against Russia so far is Germany\u2019s freeze on the Nord Stream 2 pipeline<\/a>, which would have carried liquid natural gas from Russia to Western Europe while by-passing Ukraine.<\/p>\n\n\n\n

A disruption in one regional market will eventually affect the world market. Since the invasion, crude prices have spiked above $100 and are likely to go even higher.<\/p>\n\n\n\n

Higher prices at the supermarket<\/h2>\n\n\n\n

While Russia is a major producer of fuels, Ukraine is a big exporter of food<\/a>.<\/p>\n\n\n\n

Ukraine produces 16% of the world\u2019s corn<\/a> and 12% of its wheat, as well as being a significant exporter of barley and rye.<\/p>\n\n\n\n

While many of Ukraine\u2019s exports go to countries in Europe and Asia, agricultural products, much like oil, tend to trade on increasingly integrated global markets<\/a>. Again, the implication for U.S. consumers is that while Europe might be affected more immediately in terms of shortages, prices will likely rise everywhere.<\/p>\n\n\n\n

U.S. grocery prices were up 7.4% in January<\/a> from a year earlier. Because demand for food is typically not very sensitive to changes in price \u2013 people need to eat no matter the expense \u2013 an increase in the cost of food production typically gets passed along to consumers.<\/p>\n\n\n\n

The bigger risk to the US economy<\/h2>\n\n\n\n

That brings us to the Federal Reserve.<\/p>\n\n\n\n

The U.S. central bank is very worried about the pace of inflation<\/a> in the U.S. and plans to raise interest rates to fight it. What\u2019s happening in Ukraine could complicate its plans. If the crisis in Ukraine adds to the upward pressure on prices, that can feed inflation and it could force the Fed to take more drastic measures.<\/p>\n\n\n\n

Some economists believe the U.S. could soon see 10% inflation<\/a> \u2013 up from 7.5% now \u2013 in the case of a full-scale invasion, as we\u2019re witnessing now. The U.S. hasn\u2019t seen inflation that high since October 1981.<\/p>\n\n\n\n

If the Fed decides it has to act more forcefully to tame inflation, that would not only raise borrowing costs for companies and consumers \u2013 affecting everything from business loans to mortgages and student debt \u2013 but could put the economy at risk<\/a> of a recession.<\/p>\n\n\n\n

At the same time, the crisis could have a moderating effect on interest rates. During times of crisis and uncertainty, investors often move their money into the safest assets they can find \u2013 in a so-called flight to quality<\/a>. U.S. government bonds and other dollar-denominated assets are often considered the safest around, and increased demand for these assets could result in lower interest rates.<\/p>\n\n\n\n

Ukrainians themselves will of course pay the steepest costs of the Russian invasion, in terms of loss of life, economic costs and potentially the loss of their government. But the conflict, though it may seem far away, will have an impact on people everywhere. And the hit to Americans\u2019 pocketbooks may be nearer than you think.<\/p>\n\n\n\n

[Over 140,000 readers rely on The Conversation\u2019s newsletters to understand the world.<\/em> Sign up today<\/a>.]<\/p>\n\n\n\n

William Hauk<\/a>, Associate Professor of Economics, University of South Carolina<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

William Hauk, University of South Carolina Americans may be tempted to view the war in Ukraine as an unfortunate, but far away, crisis. As an economist, I know the world is too connected for the U.S. to go unaffected. On Feb. 22, 2022, President Joe Biden warned Americans that a Russian invasion of Ukraine \u2013 […]<\/p>\n","protected":false},"author":44,"featured_media":28800,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[11389,11386,582,5853,235,11387,949,11388,348,11014],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/28799"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=28799"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/28799\/revisions"}],"predecessor-version":[{"id":28801,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/28799\/revisions\/28801"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/28800"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=28799"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=28799"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=28799"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}