The White House is prepping Americans for the likelihood that sanctions on Russia will have a ripple effect that hits their pocketbooks.
President BidenJoe BidenPentagon approves request for National Guard deployment ahead of DC trucker convoy Lee Harris discusses the past of the Development Finance Corporation’s new CEO Defense & National Security: US, allies hit Russia with sanctions MORE and other administration officials acknowledge the steps the U.S. and European nations are taking to deter Moscow from further aggression against Ukraine are likely to spur higher gas prices. But they argue defending an ally and trying to stop a war in Europe is a worthy cause.
“As I said last week, defending freedom will have costs for us as well and here at home,” Biden said in a speech on Tuesday. “We need to be honest about that. But as we do this, I’m going to take robust action to make sure the pain of our sanctions is targeted at the Russian economy, not ours.”
Asked later Tuesday if officials are specifically referring to the likelihood Americans will see higher gasoline prices, White House press secretary Jen PsakiJen PsakiBiden has done interviews with multiple Supreme Court contenders Psaki confirms Biden-Putin meeting off the table Watch live: White House holds press briefing amid escalating tensions in Ukraine MORE said, “Yeah, energy prices. Exactly.”
Biden on Tuesday announced an initial round of sanctions on several Russian banks and elites and their families. The move came a day after Russian President Vladimir PutinVladimir Vladimirovich PutinAustralia, Canada, Japan impose sanctions on Russia over Ukraine crisis Cheney: Trump’s ‘adulation’ of Putin ‘aids our enemies’ Defense & National Security: US, allies hit Russia with sanctions MORE took the dramatic step of recognizing as independent two breakaway regions of Ukraine and deploying troops to the areas.
Oil prices climbed Wednesday, with the price of a barrel of West Texas Intermediate Crude for April delivery rising 33 cents to $92.24 shortly after 5 p.m. Experts believe prices are likely to shoot higher if Russia’s invasion into Ukraine widens and Western nations impose new sanctions — and higher still if Russia’s actions in Eastern Europe disrupt the energy market to which it is a major contributor.
Stocks also fell on the prospect of higher oil prices and deeper global disruption.
The Dow Jones Industrial Average fell 1.4 percent, with a loss of more than 460 points, closing in the red for the fifth consecutive day of trading. The Nasdaq composite closed with a loss of 2.6 percent, and the S&P 500 fell 1.8 percent after already falling 10 percent below an all-time high earlier this year.
Biden is already in a politically precarious position. Inflation is high and has been a concern for months, and the situation in Russia threatens to exacerbate the issue. While the purpose of sanctions is to squeeze the Russian economy, it could have the secondary effect of tightening supplies of energy and critical minerals Russia supplies to Europe, upsetting global markets as a result.
“Should the Russian incursion into eastern Ukraine turn into a full-fledged invasion, it is likely that the global and U.S. economies will absorb yet another supply shock,” wrote Joe Brusuelas, chief economist at audit and tax firm RSM, in a Tuesday analysis.
Gasoline prices were up 40 percent, and natural gas utility service prices rose 24 percent on the year in January, according to the Labor Department’s consumer price index. They fueled much of the 7.5 percent annual increase in overall prices seen last month.
Brusuelas said the energy shock unleashed by war in Ukraine would likely push oil up to $110 per barrel, reduce U.S. economic growth by nearly 1 percent over the next year and stoke inflation close to 10 percent.
“As costly as another European war would be in human and economic terms, its economic burden in the United States would fall hardest on the middle and working classes,” Brusuelas wrote.
With annual inflation already at four-decade highs, another spike in energy prices could be politically catastrophic for Democrats ahead of the midterm elections. High inflation has walloped Biden’s approval ratings and voters’ views on his handling of the economy, giving Republicans a potent weapon as the attempt to capture the House and Senate.
“American voters are going to see the price at the pump go up and are probably going to punish Biden for that,” said Andrew Lohsen, a fellow in the Europe, Russia and Eurasia Program at the Center for Strategic International Studies. “It’s really a difficult position Biden is in. Russia has plenty of leverage with its energy sector.”
Rising energy prices will also boost pressure on the Federal Reserve to raise interest rates from near-zero levels at a faster clip. While the Fed is almost certain to raise interest rates by 0.25 percentage points at the end of its March monetary policy meeting, some officials are open to raising the baseline range by 0.5 percentage points — twice the size of a typical increase — at the risk of spooking financial markets.
Psaki said Wednesday the administration plans to coordinate with energy suppliers around the world to minimize the impact on markets and costs passed on to U.S. consumers.
While the White House has tried to be proactive in warning the public about the ripple effects of the conflict in Ukraine, it may find a public that is unreceptive to its logic.
An Associated Press-NORC poll published Wednesday found that 26 percent of Americans believe the U.S. should have a major role in the Russia-Ukraine conflict, while 52 percent believe the country should play just a minor role. Twenty percent of respondents said the U.S. should not get involved at all.
The poll reflects fatigue among much of the public about the U.S.’s involvement in conflicts abroad, even though Biden has repeatedly said he will not send American troops to fight in Ukraine. And it underscores how voters may give a chilly reception to the administration if they see any economic effects domestically as sanctions on Russia set in.
Officials have asserted any residual cost passed on to Americans should be seen as the price of defending allies and democracy abroad.
“We make national security decisions based on what’s best for our country’s national security, not on the latest polling, and if you step back … the president has sought to revitalize our partnerships and alliances and unite our country,” Psaki said at a Wednesday briefing.
“He’s standing up for our national security interests and bedrock democratic values against a dictator threatening to further invade a sovereign country. That’s why he’s doing what he’s doing,” she continued. “So we’re less focused on the politics of Ukraine and more focused on preventing a war.”
Even so, Brusuelas said the Biden administration should push even harder to revive the expanded child tax credit (CTC), which lapsed in January, to help struggling families handle higher energy prices. Biden’s $1.9 trillion stimulus bill raised the CTC benefit amount per child and allowed parents to collect half of their annual credit in monthly installments, lifting millions of children out of poverty until the expansion expired at the end of last year.
“The child tax credit has been demonstrated to work and will be needed should another supply-induced energy shock hit households,” he wrote.
“With the [U.S.] moving toward a complete reopening of the economy amid sharp increase in prices, such a policy would convey to the public that the political authority is doing something about inflation,” he added.