A Russian invasion of Ukraine could drive up already high oil and natural gas prices, prolonging elevated inflation around the world and dealing a blow to any country dependent on Russia for energy.
Oil and gas prices have been marching upward for months as exporting countries like Libya have struggled with production problems and demand has rapidly recovered after two years of the pandemic. But all of that pales in comparison with what could happen if a war in Eastern Europe and potential Western sanctions on Russia curtail that country’s production, analysts said.
Russia produces 10 million barrels of oil a day, roughly 10 percent of global demand, and is Europe’s largest supplier of natural gas, a critical fuel for power plants and for heat.
The United States is not a big importer of Russian oil — it gets about 700,000 barrels a day, or roughly 3 percent of its demand. But even Americans would be hurt because the price of the commodity is set in global markets.
Nobody quite knows what President Vladimir V. Putin of Russia intends to do in Ukraine, and most analysts agree that a war would hurt his country as much as the rest of the world, if not more, given the Russian economy’s dependence on energy. Yet, by simply amassing tens of thousands of troops near the Ukrainian border, Mr. Putin has created the kind of threat to the global energy market that the world hasn’t seen since the end of the Cold War.
“Governments had hoped that these days were over,” said David L. Goldwyn, who was a leading State Department energy diplomat during the Obama administration. “No one was gaming for a cutoff of Russian oil and gas to the global market.”
Oil prices have risen to well over $90 a barrel — their highest levels since 2014 — in recent days as fears of war have grown. Many energy experts say an invasion would easily propel the price above $100 a barrel. The average price for regular gasoline in the United States has risen to nearly $3.50, a rise of almost 20 cents over the last month and nearly $1 more than a year ago, according to AAA. Diesel prices have been rising a penny a gallon every day recently.
Higher fuel prices hurt rural and working-class consumers the most because they spend a larger percentage of their incomes on energy and because they typically drive longer distances in less fuel-efficient cars. For every penny that a gallon of regular gasoline rises, it costs American consumers $4 million a day, said Tom Kloza, global head of energy analysis for Oil Price Information Service.
“We are going to push the envelope with inflation that infiltrates every nook and cranny of the economy,” Mr. Kloza said. “I’m most worried about diesel. It doesn’t provoke a public outcry like gasoline, but it can be a silent killer of commerce and profits.”
Oil markets rose about 2 percent on Monday. They eased early in the day as traders took note of reports that Russian officials remained willing to negotiate a potential settlement before climbing again in the afternoon. European natural gas prices rose about 6 percent.
The biggest immediate threat from an invasion would be Russian natural gas exports through Ukrainian pipelines to Europe. If the gas stopped flowing, many Europeans could struggle to heat their homes. Utilities might have to cut back electricity production, and factories might have to close early. Mr. Putin could also seek to further increase pressure on the West by restricting oil exports to Europe.
Those moves would, of course, hurt Russia, and make the economic sanctions promised by the Biden administration and its allies all the more punitive. That threat may turn out to be the primary reason Mr. Putin eventually looks for a compromise.
There are reasons to hope an energy crisis could be averted. The United States has been producing more oil in recent weeks, and the Biden administration is working on efforts to revive a nuclear deal with Iran that would release as much as a million barrels a day on the world market.
The European winter has been relatively mild, and the wind is blowing far stronger than last year, easing pressure on the wind power sector. Further, the Biden administration has had some success in sending more liquefied natural gas to Europe by persuading Japan and other Asian consumers to forgo some shipments.
But global oil production has not kept up over the last year with the growth of demand despite the lingering pandemic. The output of several members of the Organization of the Petroleum Exporting Countries has declined, and there have been production interruptions outside the cartel, including in Ecuador and Kazakhstan, because of natural disasters and political turmoil. Renewed political tension could also tip Libya back into civil war, which could put at risk 300,000 barrels of production or more.
“Simply the threat of war and disruption can be enough to send prices spiraling higher,” said Nishant Bhushan, senior oil market analyst at Rystad Energy, a consulting firm.
At the same time, many commuters have given up on mass transit because of fears of contracting the coronavirus and are driving more.
American oil companies have been gradually increasing production, although they are not yet pumping out the roughly 13 million barrels a day they were in 2019. Reduced investment in exploration and production because of the pandemic, and lower investor interest in oil and gas for environmental reasons, have stretched supplies thin.
Oil executives remain cautious, in part because they borrowed heavily in recent years to bolster output only to see prices drop. Some executives also said they were struggling to predict and respond to geopolitical developments.
“If Putin invades, then oil rises over $100 to $120 a barrel,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas oil and gas company. “If Biden removes sanctions on Iran, then there will be a $10 drop.”
He added, “Demand is strong and there is not enough supply long term, so eventually oil will be over $100 regardless.”
Rising oil prices are also a threat to policies aimed at curbing climate change. As prices rise at the pump, some lawmakers and voters may become more willing to support increasing oil and gas production, seeing it as a more immediate solution to high energy prices than investing in, say, renewable energy and electric cars.
“This is a huge watershed for governments trying to manage the energy transition and energy security simultaneously,” said Mr. Goldwyn, the former Obama administration official. “The need to have adequate reserves of oil and gas and diverse sources of supply is more urgent than ever during an energy and geopolitical crisis.”
Some energy analysts said high prices might not persist for that long. That’s because people may seek to reduce their expenses by, for example, driving less or switching to more efficient vehicles and appliances. A report on Monday by analysts at RBC, an investment bank, forecast that oil prices could reach $115 a barrel or higher this summer. It added, “The oil cycle will price higher until it finds a level of demand destruction.”
The recent jump in gasoline prices comes at a time of year when people tend to drive less. To some energy experts, that is worrisome because a seasonal upswing in prices is not that far away.
“Not only are oil prices up, but the bulk of the nation is starting the multi-month transition to summer gasoline, further adding to the rise at the pump,” said Patrick De Haan, head of petroleum analysis at GasBuddy, a technology company that tracks fuel prices.
A diplomatic settlement, of course, would relieve the pressures, and energy prices would go down.
“Average prices in 2022 could be lower than 2021 with more supplies from the United States and the gulf, including Iran,” said René Ortiz, a former secretary general of OPEC and former oil minister in Ecuador. “That is the best scenario, and I think diplomacy will prevail. It would be crazy for Putin to invade.”
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