The United States banned its fuel companies from importing Russian oil overnight, forcing crude oil barrel prices to skyrocket.
Ultimately, higher barrel prices get reflected at local pumps. Despite the Ukraine/Russia conflict taking place thousands of kilometres away, fuel prices in New Zealand will continue to rise accordingly.
One barrel of crude oil currently costs US $127. The US banning Russian oil will only surge barrel prices to unprecedented highs.
Some US economists forecast barrel prices surpassing $200 in a few months.
“Defending freedom is going to cost us,” US President Joe Biden said at his banning announcement.
Senator Chris Coons admits global fuel prices will be massively impacted by the war. However, he also defends his country’s decision.
“We are going to see increased gas prices here in the United States. In Europe, they will see dramatic increases in prices. That’s the cost of standing up for freedom and standing alongside the Ukrainian people.”
European countries closer to the war depend more on Russian oil for their energy supply.
Whereas Russian oil accounts for less than 10 per cent of America’s liquid fuel imports, that figure is closer to 25 per cent for most European countries.
Banning Russian oil in those nations would cripple their economy.
New Zealand purchases oil in US dollars, so pump prices here also reflect how strongly or poorly the Kiwi dollar is going against it.
On top of that, several taxes equate to roughly half the cost of a single litre.
Average prices in Auckland have increased by 40 cents per litre over the last three months. Policy advisor for the New Zealand Automobile Association (AA) Terry Collins believes prices will continue to escalate.
He said Kiwi customers filling up with 98 octane can expect to pay $3.50 a litre next week.
Collins warns unleaded 91 could also reach $3.50 per litre at some stage this year.
“The wild card is this eastern European conflict,” he told The Spinoff.
Fuel is an inelastic commodity. Because of its necessity for most people, an increase in price does not affect demand.
Higher prices mean most Kiwis are forced to make sacrifices elsewhere.
“If they’ve got a tight budget, they’re reducing their travel or they’re having to make some concessions somewhere else,” Collins said.
In America, Biden pledged he will do everything to ensure its population does not experience too much pain at the gas pump.
“Putin’s war is already hurting American families at the gas pump,” Biden said.
“I’m going to do everything I can to minimise Putin’s price hike here at home.”
The New Zealand government has not said anything similar. However, last month Prime Minister Jacinda Ardern did promise the government would not get in the way to worsen the situation.