Will High Oil Prices Be The Last Straw For A Global Economy?

    

                                       Above is an oil refinery in Germany, that gets oil from a Russian Pipeline (WSJ)

  

    As of April 28th, 2022, Germany, one of the most influential and powerful members of the European Union said that it would agree to a ban on Russian oil. This comes only a few months after the nation said that would be impossible to cut off its reliance on Russian oil. They believe that they can ban Russian oil if they are given enough time to acquire oil from elsewhere. Oil reliance from Russia in the nation used to be much higher, at 35% percent, where today it lies at around 12%. EU Russian oil use is around 27% of all oil. Ultimately if the EU goes forward with this ban it will make oil and gas prices skyrocket all over the world, showing that a decision in today's world economy can have vastly negative effects.

The damage to the economy is likely to be hurtful enough that US Secretary of Treasury,  Janet Yellen, said that it most likely would not be a beneficial idea. She is worried it could damage the economy, even more, increase inflation, as well as raise the price of oil which will only give more money to Russia from the people who do buy their oil. This situation seems to be incredibly difficult as Russia seems to be in the best spot in any scenario. Either the EU will continue to buy their energy or they ban it and the oil they do sell will sell for much more. This predicament shows the complexity of making a decision like this because not only will it affect Germany or the EU, it will affect the whole world. Since that announcement a barrel of oil has already gone up almost 3 and a half percent.

As much as the world would like to give up oil, we simply do not have the technology to do that. Oil, and natural gas power much of the world and unfortunately we are reliant on them. That reliance right now is hurting the entire world, as fuel prices continue to be a huge issue for any family. This action of possibly banning Russian oil has the potential to send us into a recession and much of the world. With high energy prices, it will significantly slow growth. All of this stems from the Ukrainian War which has had ripples throughout the economy and world order already, and the war seems to have no end in sight.

So what can be done to minimize the damage from this unfortunate scenario? It seems that for many countries across the world there really is not one. The US could potentially increase production here, but President Biden and oil companies seem to be reluctant to do that for a different reason. Obviously, President Biden wants to protect the environment, and oil companies are happily cashing in on high oil prices. But most other countries do not even have the option to produce more oil and instead will face harsh consequences from being forced to buy oil at a higher price. 

The world economy is continuing to show its many flaws over the course of the past few years. Many countries for years have been voting for politicians that are putting their domestic needs over the international order. This was once a tough sell but since COVID, and now with the Ukrainian War people are sick and tired of getting their livelihoods turned upside down when there is a problem all the way across the globe. But is it even possible for a country to “leave” the world economy today? Everything is already so attached that it seems physically impossible to untie all of the mixed economies in the world. But if things continue to get worse, and this war drags on for years it is possible that major changes to the world order and economy may occur. High oil prices may end up speeding up the world to a more carbon-neutral future, but it could also go the other way and only increase energy production elsewhere. It seems that this conflict no matter the outcome between the two nations will have permanent effects on how the world economy operates. The world order has faced immense strain recently, and with polarization seemingly all over the world, it will be interesting to see what the future may hold for all of us.

https://www.wsj.com/articles/germany-drops-opposition-to-russian-oil-embargo-11651155915