FOR HAVING ME.
>> AMID THE HORROR OF WHAT'S
HAPPENING IN UKRAINE, CONSUMERS
HERE AT HOME ARE RAILING AGAINST
HIGH GAS PRICES.
AND LIKE ALL THINGS, THE COST OF
A GALLON OF GAS HAS TURNED UP
THE POLITICAL BLAME GAME.
WE WANTED TO PUT SOME CONTEXT TO
THE PRICE OF OIL, ITS
GEOPOLITICAL IMPLICATIONS, AND
WHAT THE WAR MEANS ECONOMICALLY
GOING FORWARD.
WE SAT DOWN WITH MARK
COPELOVITCH, PROFESSOR OF
POLITICAL SCIENCE AND PUBLIC
AFFAIRS AND INTERNATIONAL
RELATIONS AT UW-MADISON.
>> WE CAME HERE TO TALK ABOUT
OIL AND GAS PRICES BUT IN THIS
MOMENT WITH WHAT'S HAPPENING IN
UKRAINE, THAT JUST SEEMS LIKE
SUCH A MERCENARY DISCUSSION.
WHAT ABOUT THAT?
>> YEAH.
I MEAN, THE MOST IMPORTANT THING
IS, THIS IS A TRAGEDY FOR
UKRAINE, IT'S A WAR, WE'RE
SEEING THE PICTURES OF
MASSACRING OF CIVILIANS, AND SO
THERE'S TERRIBLE HUMAN
SUFFERING.
AND THE MILITARY ASPECT, AND
THERE'S HUGE IMPLICATIONS FOR
DEMOCRACY IN EUROPE.
SO THIS IS A SOVEREIGN
DEMOCRATIC COUNTRY THAT HAS BEEN
ATTACKED FOR ESSENTIALLY, YOU
KNOW, NO REASON OF ITS OWN, AND
SO THOSE ARE PARAMOUNT ISSUES,
BUT ALSO, YOU KNOW, I TEACH
INTERNATIONAL RELATIONS, AND THE
SECURITY ISSUES AND THE ECONOMIC
ISSUES IN INTERNATIONAL
RELATIONS INTERTWINE, SO ONE OF
THE MAJOR THINGS IN THE LAST
WEEK HAS BEEN THE COORDINATED
ECONOMIC SANCTIONS FROM THE U.S.
AND THE EUROPEAN UNION, THE
JAPANESE, KIND OF THE WORLD'S
MAJOR DEMOCRATIC ECONOMIES, AND
THEY'RE TARGETED AT RUSSIA'S
ABILITY TO SUSTAIN ITS ECONOMY
WHICH ULTIMATELY IS RELATED TO
RUSSIA'S ABILITY TO SUSTAIN THE
CONFLICT.
SO I THINK THE ECONOMIC ISSUES
ARE ACTUALLY VERY IMPORTANT TO
TALK ABOUT.
>> HOW MEANINGFUL IS THE U.S.
SANCTION OF ENDING RUSSIAN OIL
IMPORT, BOTH FOR THAT COUNTRY,
BUT FOR OURS?
>> I MEAN, IT'S IMPORTANT, I
ACTUALLY DON'T THINK THAT'S THE
MOST IMPORTANT OF THE SANCTIONS.
SO RUSSIA IS ONE OF THE WORLD'S
LARGEST OIL EXPORTERS.
WE ARE RELATIVELY NOT DEPENDENT
ON RUSSIA.
EUROPEANS ARE INCREDIBLY
DEPENDENT ON RUSSIA FOR NATURAL
GAS EXPORTS.
THE MOST IMPORTANT ONES HAVE
BEEN THESE FINANCIAL SANCTIONS
TO BLOCK THE RUSSIAN CENTRAL
BANK AND GOVERNMENT AND RUSSIAN
BANKS FROM PARTICIPATING IN THE
GLOBAL ECONOMY.
BASICALLY THE FINANCIAL FLOWS IN
THE WORLD ECONOMY ARE THE OIL
THAT KEEPS THE ENGINE RUNNING,
AND IF YOU CUT OFF THE OIL, THE
RUSSIAN ECONOMY BASICALLY CAN'T
FUNCTION.
SO THAT'S MUCH MORE IMPORTANT.
YOU KNOW, I THINK THE HIT TO THE
RUSSIAN ECONOMY OF CUTTING OFF
OIL EXPORTS IS SOMETHING THAT
HAPPENS OVER THE NEXT MONTH TO A
YEAR OR TWO.
THE FINANCIAL SANCTIONS ARE
ALREADY HITTING THEM VERY, VERY
HARD.
>> IN TERMS OF THE HIT TO THEIR
OIL ECONOMY, WHAT WILL THAT DO
IN THE U.S.?
I MEAN, WILL THIS RESULT IN
HIGHER PRICES HERE?
>> IT WILL RESULT IN HIGHER
PRICES AT LEAST TEMPORARILY
BECAUSE GLOBAL PRICES WILL JUMP.
SO WHEN YOU HAVE ONE OF THE
WORLD'S LARGEST OIL PRODUCERS,
NOT EXPORTING AS MUCH, YOU'RE
GOING TO HAVE THESE SHORT-TERM
SPIKES.
BUT WE ARE NOT VERY DEPENDENT ON
RUSSIA, RIGHT, AND THERE'S
ALREADY TALK OF HOW YOU'RE GOING
TO REALLOCATE GLOBAL OIL SUPPLY
CHAINS, THE U.S. GOVERNMENT
RELEASING OIL FROM THE STRATEGIC
PETROLEUM RESERVE, MOVING TO
ALTERNATIVE ENERGY.
SO YOU KNOW, YOU SAW THE SHORT
TERM SPIKE.
I THINK OIL WENT UP TO ABOUT 125
OR 130, IT'S ALREADY BACK DOWN
TODAY BELOW 110.
SO OIL PRICES ARE GOING TO BE
HIGHER, GAS PRICES ARE GOING TO
BE HIGHER, BUT IT'S NOT GOING TO
BE A SORT OF THINGS ARE GOING TO
KEEP GOING UP.
FOR THE NEXT SIX MONTHS TO A
YEAR, I THINK.
AND FOR THE U.S. REALLY, AGAIN,
THE ECONOMIC HIT IN TERMS OF
INFLATION IN THE REAL ECONOMY,
LESS THAN 1% OF OUR TRADE IS
WITH RUSSIA.
>> SO IF YOU GO IN AND PUT GAS
IN YOUR CAR, IT'S NOW LIKE ABOVE
$4 A GALLON.
>> RIGHT.
>> IS THAT A MAJOR SHOCK?
>> YOU KNOW, IT'S STICKER SHOCK,
RIGHT?
PEOPLE SEE IT, AND OIL PRICES
WERE VERY LOW AT THE START OF
THE PANDEMIC AND GAS PRICES WERE
DOWN PROBABLY TO 2.20, SOMEWHERE
AROUND THERE.
FROM 2011 TO 14, GAS PRICES WERE
HIGHER THAN EVEN THE HIGH PRICES
NOW, AND IF YOU ADJUST FOR
INFLATION, I THINK THE NUMBER I
SAW YESTERDAY WAS WE'D NEED
ANOTHER 32% RISE IN PRICES TO
GET TO WHERE WE WERE IN REAL
TERMS IN 2011 TO 2014.
SO THEY'RE HIGH, BUT THEY'RE NOT
HISTORICALLY INCREDIBLY HIGH.
AND AGAIN, IF YOU THINK ABOUT
HOW MUCH THE AVERAGE HOUSEHOLD
SPENDS ON GAS, YOU'RE TALKING
ABOUT PROBABLY ABOUT A THOUSAND
DOLLARS A YEAR, WHICH IS A BIG
HIT, BUT THERE ARE OTHER THINGS
THAT HAVE BEEN BIG HITS TOO,
LIKE THE TARIFFS WITH CHINA FROM
THE TRADE WAR ACTUALLY RAISED
HOUSEHOLD SPENDING COSTS EVEN
MORE THAN THAT.
>> WHEN YOU COMBINE THE COST OF
GAS, THOUGH, WITH THE HIGH
INFLATION, AND WE REALLY ARE
TALKING ABOUT A HIT ON
INDIVIDUAL CONSUMERS.
>> YES, ABSOLUTELY.
I MEAN, INFLATION IS NOW -- THE
NUMBERS TODAY WERE 7.9%, AND SO
IT IS A MATERIAL HIT.
I MEAN, I THINK -- I LIKE TO PUT
IT IN PERSPECTIVE BOTH TO
HISTORY AND THE EXPERIENCE OF
THE LAST YEAR, SO HISTORICALLY,
IF YOU LOOK AT THE 1970s, WE
HAD INFLATION UP TO 15%.
AND THAT LASTED FOR SEVERAL
YEARS.
SO THIS IS HIGH RELATIVE TO A
WORLD WHERE WE GOT VERY USED TO
REALLY LOW INFLATION FOR TWO
DECADES.
THE OTHER THING TO THINK ABOUT
IS, YOU KNOW, IT'S A HIT TO REAL
INCOME AND CONSUMPTION, BUT THE
AVERAGE HOUSEHOLD ACTUALLY
RECEIVED ABOUT $3,400 IN FEDERAL
RELIEF OF VARIOUS FORMS IN THE
LAST YEAR.
SO REAL INCOME AND REAL
CONSUMPTION ACTUALLY DIDN'T GO
DOWN, IF YOU LOOK FOR THE
AVERAGE HOUSEHOLD IN THE LAST
YEAR.
SO A LOT OF THE TALK ABOUT
SUFFERING OF INFLATION IS
LOOKING FORWARD NOW, BECAUSE
THERE'S PROBABLY NOT GOING TO BE
ANOTHER BIG STIMULUS PACKAGE TO
OFFSET THE COST OF INFLATION
GOING FORWARD.
>> WHAT'S THE EXPECTATION OF
INFLATION TRENDING DOWN?
>> YOU KNOW, I THINK WE WERE --
BEFORE 14 DAYS AGO, WE WERE
TALKING ABOUT THIS IS PROBABLY
THE PEAK OVER THE NEXT MONTH OR
TWO.
BECAUSE THE VAST MAJORITY OF THE
INFLATION WAS CROSS NATIONAL AND
ABOUT THE PANDEMIC AND SUPPLY
CHAINS.
YOU KNOW, IT'S 5, 6% INFLATION
IN EUROPEAN UNION COUNTRIES,
IT'S 7-SOMETHING HERE.
ON THE MARGIN, IT WAS ABOUT THE
STIMULUS PACKAGE AND THINGS LIKE
THAT IN THE U.S., BUT MOST OF IT
WAS ABOUT THE INFLATION IN THE
PANDEMIC, THE ECONOMY FREEZING
UP, SO AS THINGS WERE
RE-OPENING, WE WERE STARTING TO
THINK ABOUT OVER THE NEXT SIX
MONTHS PROBABLY INFLATION IS
GOING TO COME DOWN.
IT'S A LITTLE LESS CLEAR IF IT'S
GOING TO COME DOWN.
I DON'T THINK IT'S GOING TO KEEP
GOING UP, YOU KNOW, AT FASTER
AND FASTER RATES EVERY MONTH,
BUT I THINK WE'VE EXTENDED THE
TIME HORIZON NOW GOING FORWARD
OF WHEN DOES IT GET BACK TO WHAT
WE THOUGHT WAS NORMAL INFLATION
OF 2% OR 3%.
SO YOU'RE DEFINITELY GOING TO
SEE IT OVER THE NEXT SEVERAL
MONTHS AND WE DON'T KNOW HOW
LONG THE CONFLICT IN UKRAINE IS
GOING TO LAST.
WHAT THE BROADER RAMIFICATIONS
OF THAT ARE.
>> OKAY.