The War in Ukraine, Russia, and the Price of Gas

Antonio Graceffo


Around the world, people are struggling with high gasoline and energy prices. At the same time, sanctions against Russia are preventing Moscow from selling most of its exports and from utilizing international banking networks to conduct business in dollars. The ruble has become a nonconvertible currency, and the Kremlin is looking for ways to circumvent sanctions. The explanation of the relationship between rubles and the price you are paying at the gas pumps is rather complex, and it also involves China, the yuan, and OPEC.


Immediately after the Ukraine invasion, the ruble lost about half of its value as the E.U., Japan, and other Western nations joined the United States in applying sanctions on Moscow. Many foreign companies stopped doing business with Russia, and investors pulled out, for fear of incurring secondary sanctions. Most Russian banks were kicked off of international financial networks. U.S. credit card companies, VISA and MasterCard, canceled service in Russia. Maritime shipping services halted their pickups and deliveries at Russian ports. And numerous online exchanges, platforms, and retailers stopped accepting rubles. Nations cut trade with Russia, and the Russian economy was headed for collapse. However, there was one area of trade where Europe was reluctant to cut. And that was energy.



At the time of the invasion, Russia provided over half of Europe’s solid fossil fuels and 43% of its gas. As long as Russia could continue to earn revenue on energy exports, the country and the currency could stay afloat. However, as the EU has been moving towards achieving climate goals, Europe was already planning to shift away from utilizing coal and from importing oil from Russia. The Ukraine invasion simply accelerated the timetable. As of December, maritime shipments of oil to the EU have been banned, although a few EU countries will still purchase Russian oil through a pipeline. This move will severely decrease Russia’s remaining sources of income.


The value of a country’s currency is highly correlated with the GDP. Before the Ukraine invasion, oil and gas accounted for about 21.7 percent of Russia’s GDP. By December, it had dropped to 18 percent of GDP. Although the ruble plummeted, immediately after the invasion, by summer, it had rallied, because it seemed that Europe had not found a way to do without Russian energy. Meanwhile, Ukraine refused to surrender, dragging out the war, handing Russia defeat after defeat, and the sanctions became ever tighter, driving down the value of the ruble. Since its peak, in June, the ruble has been in steady decline, nearly reaching pre-invasion levels.



One way that Vladimir Putin could pull his currency out of freefall is by backing the ruble with gold, something he hinted at earlier in 2022. The problem, however, is that Russia only has  about $140 billion of gold reserves, while the GDP in 2021 was $1.775 trillion. Additionally, U.S. sanctions prevent gold dealers, banks, financial institutions, companies, and persons from engaging in gold transactions with or on behalf of Russia. In addition to preventing Russia from backing the currency with gold, these sanctions will also prevent Russia from exporting gold, its second-most valuable export. Losing the income from gold exports will contribute the decline of Russia’s GDP and its currency.

How this relates to you is that the price for gasoline that you pay at the pumps, like the price of every other product you buy, is dictated by the laws of supply and demand. The supply of oil is controlled by OPEC, a cartel, comprised of 13 members: Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates, and Venezuela. Together, the OPEC nations account for about 44% of global oil production. OPEC members meet twice a year in order to set an agreement on the quantity of oil they will produce. People often think that OPEC controls the price of oil, which is not the case -- OPEC controls the quantity supplied. And when the quantity supplied decreases, the price increases.



The White House has been urging OPEC to increase oil production. This is because increasing the supply would bring down the price we pay at the pump. So far, OPEC has been unresponsive and prices have remained high. Russia accounts for about 10 percent of the world’s oil supply. Taking Russia out of the equation will drive up the price of oil even further. Europe, however, has set a price cap, whereby, if Russia agrees to sell at a price demanded by Europe, $60 per barrel, the EU will then allow its vessels to transport Russian oil. It remains to be seen if this will work. Putin has already said that he refuses to sell to countries participating in the price cap.


Now the plot thickens. Enter China. China is the world’s largest importer of petroleum products, as well as the largest importer of gas, and coal. During the past three years of rolling and intermittent lockdowns, demand from China was down, which kept global energy prices stable. Now that the Chinese economy is in the doldrums, the government is moving forward with infrastructure projects, while trying to encourage manufacturing and construction, to create jobs and drive up the GDP. For this reason, China has been increasing its  purchases of Russian oil and gas, helping Russia bypass U.S. sanctions. The financial support from China puts Russia in a better position to refuse to sell oil to countries participating in the EU price cap, which will keep the price high in Europe.



Because of U.S. sanctions, it is difficult for Russia and China to settle their trades using the U.S. dollar. As a result, Moscow and Beijing have agreed to conduct their energy deals in two currencies, the yuan and ruble, in a 50/50 split. The income from China will help prop up Putin’s regime and help him to finance his war. On the other hand, if the ruble continues to slide, China will get even cheaper oil and gas, while the income flowing back to Moscow will be worth less. Cashing in on a bargain, China has increased its energy purchases from Russia by 60%.


Russia’s economy is clearly in trouble, with the GDP trending negative. In the third quarter of 2022, the GDP growth rate was -3.7%. If Europe, with the help of the U.S., can find a workaround and completely stop buying oil and gas from Russia, the Russian economy and currency will go into freefall. Ostensibly, this will make it more difficult for Moscow to continue financing the war in Ukraine.


As for the gasoline prices, oil prices are trending downward now, because of slumping demand around the world. In some places, gasoline is already back to the price it was at a year ago. Slumping demand and a slowing economy will hopefully rein in inflation, which is also trending downward. Hopefully, we will also see lower price tags at the grocery store. However, a downward trending economy will also mean more layoffs and more unemployment in the near term.


Author Bio:

Antonio Graceffo, a Highbrow Magazine contributor, is a Ph.D. and also holds a China-MBA from Shanghai Jiaotong University. He works as an economics professor and China economic analyst, writing for various international media. Some of his books include: The Wrestler’s Dissertation, Warrior Odyssey, Beyond the Belt and Road: China’s Global Economic Expansion, and A Short Course on the Chinese Economy.


For Highbrow Magazine


Image Sources:

--Manhhai (Flickr, Creative Commons)

--The President Of Ukraine (Flickr, Creative Commons)

--Resone TIC (Pixabay, Creative Commons)

--Romi Lado (Pixabay, Creative Commons)

--Donkey Hote (, Creative Commons)


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