Global Instability has Local Impacts
For most Americans, Russia’s invasion into Ukraine is part of a foreign, distant war. The burden of that war is hitting the people of Ukraine and their neighbors. But the rest of the world is feeling the economic aftershocks of the invasion.
Right after Russia invaded Ukraine, oil prices shot up to over $100 a barrel, the highest price in eight years. Russia is a large world oil and gas producer and disruptions there have rippling effects on the rest of the world.
“We are kind of used to having some of these political events or other types of events have a big impact on our economy,” said Neal Fried, an economist with the state.
Fried said there are two ways for Alaskans to think about rising oil and gas prices.
Most drivers will probably notice them first at the gas pump. Gasoline prices were already high before the instability – a surge that followed months of historic lows in the early days of the pandemic.
Fried said Thursday he’s been seeing prices in Southcentral of $3.99 per gallon.
“We know it’s very likely to go over $4 because the price of oil has already pressed at $100,” he said.
But he also said he tells Alaskans that high oil prices are also something to celebrate for the state.
“Our treasury collects a lot more money, which it is doing right now as a result of higher revenues,” Fried said.
Rising oil prices were already expected to give Alaska a boost for fiscal years 2022 and 2023.
Fried says higher prices also mean more activity on the oil patch,
Fried said the embargo of the 1970s sent oil prices skyrocketing and led to more production in Alaska. The trans-Alaska pipeline was constructed not long after.
“That was sort of the first experience of seeing a real spike increase in oil prices, which wasn’t good for the country but it certainly was good for Alaska,” Fried said. “And the big increase in the ’80s, as well. It was big enough to send the nation’s economy into a recession and we moved into a boom.”
Natural gas prices are also shifting, though Alaska is partially insulated from global changes in gas supply and demand.
Other commodities are impacted, as well. Russia is a big exporter of valuable minerals.
“We are a storehouse, a potential storehouse of lots of minerals,” Fried said. “So that, too, could have some impact on the outlook for mining in Alaska.”
Tensions between Russia and the U.S. have already hit Alaska’s seafood sector.
Russia has banned seafood from the U.S. for almost a decade. That 2014 ban was a response to sanctions from the U.S. on Russia after it invaded Crimea.
Before the ban, Alaska exported more than $60 million in seafood to Russia, according to the Alaska Seafood Marketing Institute – most of it salmon roe.
At the same time, the U.S. has started importing more seafood from Russia. Sens. Lisa Murkowski and Dan Sullivan tried to pass a bill in Congress that would reciprocate that ban.
“It’s called reciprocity. It’s called fairness,” Sullivan told Congress earlier this month. “And it’s righting a wrong that’s been in the works for nine years now, whether you’re a fisherman in Massachusetts or a fisherman in Alaska.”
The bill was blocked in the Senate.
An overall theme of all these economic factors, Fried said, is uncertainty.
Uncertainty is already high with COVID-19. And uncertainty is never good for economics.
“This is not probably good news for the inflation story, either, that we’re looking at right now,” he said.
But without knowing how the conflict will play out, he said it’s hard for economists to predict what will happen next. The only thing to do for now is watch and wait.
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