International Forecaster Weekly


Prices at the gas pump are soaring toward an all-time high, but drivers appear to be saying, oh well—for now anyway.

Guest Writer | March 9, 2022

By Dave Allen for Discount Gold & Silver

Prices at the gas pump are soaring toward an all-time high, but drivers appear to be saying, oh well—for now anyway.

Energy prices were already a significant factor in the four-decade high in inflation, and further increases will only eat away more at the wage gains workers have been making over the past year or so.

The national average price of gasoline rose above $4 per gallon for the first time since 2008, because of the Russian invasion of Ukraine, sending oil prices above $130 per barrel.

But demand for gasoline also increased in the last two full weeks of February, according to the Energy Information Administration.

Demand was 7% higher in the week ending February 25th than the same period in 2021, when the average gallon was about 33% lower at about $2.70.

Americans are fed up with the pandemic and with being cooped up and are eager to hit the road, Jack, in 2022.

Market strategist David Kelly believes “[t]he effects of a two-year pandemic are finally fading. This is unleashing huge pent-up demand for travel, entertainment and leisure services.”

But let’s face it, $4 a gallon gas isn't what it used to be. The nation’s record of $4.11 in July 2008 would've translated into $5.25 in January 2022 when including for inflation.

The question is, How high can prices go before Americans start to change their behavior and plans again? Jay Hatfield of Infrastructure Capital Advisors estimates the nation will hit a record average of $4.70 later this year.

As of now, the upward pressure on gas prices is crashing into Americans’ desire to live life more fully — and for now, it’s hard to know which factor will win in the longer run.

Cutting Imports of Russian Oil Could Make it Worse

President Biden and members of both parties in Congress are seriously considering cutting U.S. imports of Russian oil and ways to minimize the impact on global supplies and consumers.

White House spokeswoman Jen Psaki told reporters, "We are looking at ways to reduce the import of Russian oil while also making sure that we are maintaining the global supply needs out there."

U.S. Senators Joe Manchin of West Virginia and Lisa Murkowski of Alaska have proposed a bipartisan bill to ban all Russian oil imports to counter Russia’s “weaponizing” energy.

The bill is getting fast-tracked in the Senate, and the White House could rely on the legislation to ban imports, a move that would help share the blame for any short-term further price spikes.

Roughly 80% of Americans—including solid majorities of Republicans and Democrats—support the ban. 

Still, the White House is proceeding cautiously, concerned about a spike in gasoline prices that would add to consumers’ price woes.

Americans are by far the world's heaviest consumers of gasoline, thanks to big cars, long commutes and little public transportation in many areas.

And rising gas prices have traditionally been political poison for U.S. leaders. 

The U.S. imported an average of 20.4 million barrels of Russian crude and refined products a month last year—about 8% of all U.S. liquid fuel imports.

White House economic adviser Cecilia Rouse noted, "What's really most important is that we maintain a steady supply of global energy."

Other things being equal on the demand side, that would likely stabilize gas prices in the medium and long term.

What About Russia’s Sovereign Debt?

And now, as the West’s economic war against Russia advances, analysts like Kate Marino are asking, what will happen to Russia’s sovereign bonds? 

The Russian government has borrowed about $49 billion in dollar- and euro-denominated bonds and owes a series of interest payments to bondholders in the coming months.

As Marino notes, if Russia should default on its debt, it will play out differently than sovereign defaults of the past.

And a default could be a lot more likely if the U.S. and EU should decide to expand the sanctions to a partial or total boycott of Russian oil.

Where else would Putin find the revenues—from China loans or his oligarchs’ hidden stash of cash (or bitcoin)?

Either way, investors are watching for signs that a default could be a multiplier into broader market dysfunction as Russia's 1998 ruble debt default precipitated.

“The default risk is real,” according to DWS Group’s head of Americas George Catrambone. And the market for Russian bonds is in uncharted territory, effectively frozen. 

There are few buyers in the secondary market, according to Catrambone, and some clearinghouses won’t execute trades because of the sanctions.

Putin did decree over the weekend that Russia can pay foreign creditors, but only with rubles, which are quickly and deeply depreciating in value.

Whether Russia defaults on its bonds will depend on Putin’s willingness to pay principal and interest as they come due (unlikely, considering the West has frozen much of its money).

Even if they decide to pay P&I, there’s still the question of Russia’s ability to transfer the payments—a big question, given the sanctions’ having frozen Russia out of the international SWIFT payments protocols.

A default is really bad for the defaulter, which gets a dark black eye on its credit score—forcing higher interest rates for its bonds.

It’s also generally blacklisted from the global capital markets for awhile until it works out a deal with creditors. But  Russia’s already cut off from the markets. 

And the state of widespread hostility (Putin declared the sanctions a declaration of war) will make a debt restructuring deal virtually impossible to achieve.