The fuel price increase is an ongoing issue that is shaking the world and driving the economies of many countries into recession. It’s something that many people are talking about and experts state that we are facing another economic crisis. But, is this really the truth?
Take the UK for example – as of June 2022, the price of fuel hit a new all-time high. For one liter of gasoline, UK citizens have to cash out $2.23, which is a price from which you will definitely feel a hole in your wallet afterward.
There are many different reasons why the price of fuel is increasing and the complexity of the problem goes very deep. The media indicates that the main reason is the war in Ukraine, but the truth is a bit different (albeit war is in fact one of the main reasons we can blame for the increase).
Many people are wondering whether this trend of growth in fuel prices will continue or if they can expect that levels go back to normal. This is something we can’t give an answer to, but what we can do, is debunk the story behind the fuel price increase and talk more about its reasoning.
In this article we’ll cover everything there is to the fuel price increase that is shaking the world right now. We’ll see who is to blame for it, why is it happening and what actions are countries taking to lower the prices.
Why is the price of fuel increasing?
Before we start talking about the reason why fuel prices have been increasing lately, it’s important to talk a bit about history. In order to understand the nature of fuel (gasoline), we first need to tackle the problem of oil – since oil is the main driving force of the economy globally.
Right now, we can say that oil is probably the most important resource in the world – even more important than gold or money. Why is that you may be asking? Well, simply put, countries use oil for producing many different products, including fuel and in the petroleum industry.
Now, this might not sound significant but once you know that only 10 countries own over 50% of overall world oil, things take a different perspective. Oil is limited but not only that – we can say that the current state could be a monopoly since a handful of countries hold the biggest reserves. All of this means that these countries can dictate the price of the fuel, if they wanted to.
Another extremely important resource, that goes hand in hand with oil is natural gas. Usually, natural gas reserves are found next to the oil reserves which makes them ideal partners. Natural gas is used as a fuel for some vehicles but more importantly, it is used in winter for heating homes. And, the usage of natural gas is astronomical. Studies show that Europe uses around 394 billion cubic meters annually, the most in the world. Without natural gas, there is no heating in the winter, which makes this resource incredibly important.
Add to that the fact that Russia is the single biggest holder of natural gas in the world, and you can imagine what shifts one decision can cause on a global scale. Therefore, let’s talk about the highlights so far of 2022 – Russia’s invasion of Ukraine, and how that impacted the price of fuel.
Is Russia’s invasion of Ukraine behind the fuel price increase?
On the 24th of February, Russia invaded Ukraine in a war that essentially began in 2014 with the invasion of Crimea. The beginning of the war in 2022 was something many nations warned upon since Russia has been gathering forces on the border with Ukraine since 2021.
There are many reasons why Russia invaded Ukraine, and we will just cover them briefly in order to have the proper knowledge to understand the topic better. The official statement that comes from Russia is that they are doing a special military operation (not war) of cleansing Ukraine from Nazis and saving the Russian people that live in Ukraine from the repression (many people in Ukraine identify as Russians).
Although this might be the case and possibly one reason, the more apparent one is the fear of NATO forces that could come close to Russia if Ukraine joined the organization. The story of Ukraine joining NATO is a long-lasting one, and from its beginning, this wasn’t approved by Russia. Ever since the joining became more apparent, Russia has been warning about the actions it will take, and in the end, they happened.
But, many experts say that the real reason behind the war is the vast reserves of oil and gas that Ukraine has in the Donbas region and the Azov sea. Russia knows that these two resources are the most important in the world right now, and want to add a bit more to its reserves under the facade of war. Keep in mind that these are all speculations, and we probably won’t ever know what is the truth, but one saying says: “Where there is smoke, there is fire”.
Because of the war, almost all of the world’s countries applied sanctions on Russia. In return, Russia asked all of them to pay for the gas (since Russia is the world’s biggest exporter of natural gas) in Rubles, essentially saving the Ruble from inflation. Most of the countries had to comply since Russian gas is essential for them.
But, to some countries, Russia has cut out the export of gas, and together with the sanctions and harder logistic transfer of gas, this has led to an overall price increase on a global scale and symptomatically in a fuel price increase.
Crypto and fuel price increase
Together with the war in Ukraine, crypto has been in the public eye because it’s not centralized and because many thought that Russia will use it to avoid sanctions and make the Ruble a stable currency.
Cryptocurrencies such as Bitcoin or Ethereum have been the ones public most talked about since they are the biggest in the space and known even to someone who is not that familiar with cryptocurrencies. At the beginning of the war, Bitcoin saw a price increase that many connected to the war itself, but this has been a subject of debate and we can’t say for sure whether that’s the case or not.
The world saw higher adoption of cryptocurrencies in the last five years, and it seems that several things sped up that adoption even more. For example, many countries stated that it will be possible to pay for fuel in cryptocurrency, but none of them really made the final last push for the law to go through.
That was the case until Brasil, in 2021, together with one of the biggest fuel companies – Shell introduced the ability to pay in crypto to its customers in the country. This marked the start of overall acceptance of crypto in the gas and fuel market and since then, many companies offered different gift cards (which customers can buy with crypto) and later use for fuel purchasing.
The truth is that crypto in general has a long way to go before it becomes widely accepted and its use-case common in everyday life of people. The actions countries such as Brasil and companies such as Shell took to speed up this process are a good indicator that crypto is being recognized, and it’s just a matter of time before it becomes even more widespread.
Are there any actions being taken to lower gas prices?
Since the fuel crisis is on the horizon, many countries have introduced several actions in order to lower the price of gas and fuel. Since the beginning of the war, the US has seen a steady increase in gas prices. In the past few weeks, the price of gas has skyrocketed, and many states offer gas at a $5 price tag.
The price of oil also increased, and the current price of one gallon in June 2022 is around $120. This impacts the price of fuel as well and many countries are facing a series of protests from citizens that require a blockade of the price so that it doesn’t increase even more.
Combine all of this with a whopping inflation level that every single country in the world is facing (Germany has the biggest inflation in its history after the Second World War!), and it’s no surprise that many countries are worried about the future and what it holds.
Therefore, they are taking different measures to ensure that the price of gas, oil, and fuel stays in “normal” ranges. Many countries are activating a so-called limit buying, limiting the amount of gas/fuel one person can buy.
Some countries are also introducing a “blockage” that can last anywhere between a week and a few months – this “blockage” restricts gas companies to increase the price of fuel even more and therefore, reduces the impact on the economy to some degree.
All these measures have one goal to accomplish – to lead the ship (in this case the country) to the safe harbor in terms of economics, inflation, and general recession. The war in Ukraine combined with post-Covid-19 inflation and oil shortage will surely have a big impact on the whole world, and years will have to pass until we understand its full influence of it.
What will happen in the future?
Truth to be told, no one can predict what the future holds for how long the current state of inflation and resource shortage will last. At the same time, no one can predict for how long will the war in Ukraine last, and it surely has a vast impact on everything else mentioned in this article.
As of now, countries are doing all they can do to provide the best possible living conditions for their citizens. Sure, the war in Ukraine could intensify even more and lead to an even bigger shortage of gas and oil. The inflation might become even bigger and enter the two-digit zone this year. The price of all resources might become unbearable for a regular citizen, but all of this isn’t something that we as individuals can influence.
Therefore, the best thing you can do is try to live your normal life. Sure, some things will become more expensive but what can you do? If that’s the situation for you, it’s the same for the rest – and you all have to deal with it.
We are being positive, and think that it’s just a matter of time before the war stops, inflation falls and prices of fuel go back to normal. It might take several months until this happens, but we like to think that it’s inevitable.