Gas prices in Utah and across the country have spiked dramatically in the last few weeks, driven in large part by the economic fallout from Russia’s invasion of Ukraine and further heightened by President Joe Biden’s decision, announced Tuesday, to ban U.S. imports of Russian oil and gas.
But besides the record-high prices for gasoline and diesel fuel, which not only hits consumers at an everyday level but can push up prices on a wide variety of goods and services, what other economic impacts could Utah residents and businesses expect to see as Russia’s military aggression toward Ukraine approaches the three-week mark?
On Tuesday, the Salt Lake Chamber convened a panel of local business and economic experts, along with Utah Republican Sen. Mitt Romney, to discuss how well Utah is situated to weather the unrest as it continues to unfold and disrupt global economic systems.
Romney, who is a member of the U.S. Senate Foreign Relations Committee, said he was in support of Biden’s actions in response to Russia’s invasion but also noted current and previous administrations had not done enough to help build a bulwark in Ukraine to dissuade Russian aggression.
“I think you have to give the president and his administration some real credit for assembling so many nations, within NATO and some outside NATO, to come together to put in place the sanctions that were established,” Romney said. “And they’ve gotten tougher in part because the public opinion around the world … has been so overwhelmingly opposed to Russia that nations have been willing to sign up for stiffer sanctions than I think might have been anticipated.
“The big error of this administration was not providing sufficient arms to Ukraine to really frighten Russia and that I think was an error not just of this administration but in prior administrations, Republican and Democrat. We just didn’t take the threat of a Russian invasion seriously enough to make sure Ukraine had the defensive weaponry to repel an attack.”
Romney noted several commodities indexes were at or near all-time highs this week and said it was too early to predict how much future volatility to expect across global markets. He shared his concerns that European nations, which rely much more heavily on Russian energy and commodity exports, could be pushed into an economic recession that had a chance of pulling the U.S. down with it. And, he noted the overall impacts were almost sure to fuel further inflationary pressures on consumers in Utah and across the country.
While escalating gas prices may be the earliest and most visible evidence of global market disruptions — Utah’s average price per gallon rose nearly 70 cents in the last week and was at $4.19 Wednesday according to AAA, just three cents shy of the state’s all-time high — the Beehive State, on average, uses less gas than most.
Natalie Gochnour, associate dean at the University of Utah’s David Eccles School of Business and director of the U.’s Kem C. Gardner Policy Institute, participated in Tuesday’s economic forum and said Utah’s wide-open spaces can lead one to believe the state’s residents are, collectively, doing a lot of driving. But the data suggests otherwise.
“We are one of the lower per-capita users in the country,” Gochnour said. “It might surprise people because you’d think we are all driving long distances, but (our population) is very compact, very urban.”
Gochnour also noted that high prices at the pump reflect oil producers are getting top dollar for the crude oil they extract and Utah is among the top states in the nation when it comes to oil production, producing 87,000 barrels a day according to 2020 data.
And that’s a boon for local petroleum industry companies.
“When oil prices rise, if you’re not an energy producing state you only hurt,” Gochnour said. “But when you are an energy producing state, you can benefit from it ... and Utah is the 11th largest oil production state in the country.”
Gochnour said in addition to oil and gas exports, other commodity markets that Russian producers play a large role in, like wheat and some metals, are seeing escalating prices and those factors are coming at a time in which U.S. inflation has been growing at the fastest rate in decades. And that convergence of factors is likely to further drive inflationary pressures.
But there’s another factor that is likely to work in Utah’s favor when it comes to weathering the negative economic ripples from sanctions aiming to isolate Russia from the rest of the world.
Gochnour cited pre-pandemic data reflecting that, of the $17 billion worth of export business Utah did in 2019, only about $20 million went to Russian markets. The state’s top international economic export markets are, in order, the United Kingdom, Canada and Mexico. Russia was holding down the 43rd spot, by dollar value, when it came to export volumes that year.
Of that $20 million in Russian exports, about $6.3 million was in food products, while machinery made up about $3.2 million and miscellaneous manufacturing generated about $3.2 million in export value.
Panel member and World Trade Center Utah President/CEO Miles Hansen, who has also spent years in the Middle East and eastern Europe working for the U.S. State Department, said a growing list of businesses are curtailing activity in Russia and noted impacts, due to sanctions and the invasion itself, were also roiling European markets in a manner that required new calibrations for Utah businesses with a presence there.
“(The Utah business community) needs to buckle up and focus on resilience,” Hansen said. “We can’t apply practices of doing business in Europe as business per usual. This is going to have long-lasting impacts not just on commodities, mining and energy but in other aspects of the economy as well.”
But Hansen said he believes that Utah is entering the current turmoil in a very strong economic position and new opportunities are likely to arise for Utah businesses that are nimble and on the hunt for new markets.
Gochnour also sees Utah’s diverse and thriving economy as well situated to navigate the coming challenges emanating from Russia’s invasion of Ukraine.
“In Utah, we enter into this world conflict in a very good position,” Gochnour said. “We have the fastest growing economy in the nation and are one of only four states whose economies have grown over the past two years.”