It is no secret that the global economy is interconnected. This month, Americans watched as the prices for food, gas, and travel (including shipping costs for online shopping) rose dramatically. Even if the conflict is 5,700 miles away, what happens in Ukraine and Russia affects Americans in tangible ways – especially rural Americans whose incomes are lower and are more financially vulnerable to increases in inflation.
Gas prices rise as oil goes over $120 a barrel
Oil prices crested over $120 a barrel for the first time in eight years. Accordingly, the American Automobile Association (AAA) estimates that the national average for gas is $4.316 per gallon. These increases did not happen overnight.
Oil exploration halted dramatically during Covid-19, with prices trading below $20 a barrel on the Brent Crude Oil index (i.e., the leading global price benchmark for oil). Many European oil majors wondered if global demand would ever return to pre-pandemic levels. As a result, exploration and drilling for oil and natural gas slowed considerably, leading to an eventual imbalance between global supply and demand in 2022.
Russia is one of the world’s leading oil exporters, producing nearly 12 percent of global crude oil (and 17 percent of its natural gas). The reduction of Russian oil, coupled with OPEC not releasing additional oil supply to the world market, made the commodity even scarcer. As a result, oil prices rose to over $120 a barrel. Since the beginning of the year, oil prices have increased from $79 to $127 a barrel.
High oil prices affect the gas prices we pay at the pump because petroleum is derived from crude oil. While we may hope to transition to a more renewable energy future long-term, the reality is that America's energy infrastructure is still years away from that transition being sustainable. Until electric vehicles become the norm – and more affordable for most Americans – the need for gasoline will drive the American economy (and inflation). People need gas to drive to work, take their kids to school, and attend medical appointments. Everyone feels the pain at the pump, but it disproportionately hurts those families at or below the median income who need to pay higher prices on lower budgets. Subsequently, high gas prices significantly affect rural communities.
On average, rural Americans drive farther for work, healthcare, and school than their urban peers. Sivak Applied Research, a transportation research firm, analyzed the top states for vehicle miles traveled per capita in 2018. Eight of the top 10 voted for Donald Trump in the 2020 election, including Wyoming, Alabama, Mississippi, North Dakota, Missouri, Arkansas, Indiana, Tennessee. For reference, Wyoming averaged 18,072 miles per person, whereas Washington D.C. averaged 5,261.
Likewise, because rural geographies and roads tend to differ significantly from urban landscapes, rural Americans are more likely to drive larger vehicles like pickup trucks or SUVs that are typically less fuel-efficient. According to data from Experian, the top 10 states where pickup trucks were the largest percentage of new vehicle sales all voted for Trump in 2020 and were largely rural in composition: North Dakota, Wyoming, Montana, South Dakota, Idaho, Alaska, Iowa, Missouri, Arkansas, and West Virginia. Of those ten states, North Dakota and Wyoming led with 41.8 and 41.5 percent of new car sales being pickup trucks. The desire for large pickup trucks is not only cultural but also practical, especially for those working in construction and agriculture.
Energy independence helps rural Americans
America needs energy policies that balance citizens' immediate needs with long-term environmental concerns. The war in Ukraine showed American policymakers – and their European counterparts – that the collective transition to renewable energy is still in its early stages.
The decarbonization transition will take time. In the near-term, traditional energy sources – such as oil, natural gas, and nuclear power – need to be used to power American households. American policymakers should never look to autocratic leaders in Russia or Venezuela for oil and natural gas when American energy companies could fill these voids. Moreover, nuclear power offers an abundant, low-carbon energy source that should be considered a critical part of America's energy infrastructure.