Energy & Environment

Russia’s invasion of Ukraine is driving up oil prices. That’s good for Texas oil and gas companies – and bad for consumers

While the invasion might be happening about 6,000 miles away from Houston, the city’s oil and gas sector will see an unexpected windfall.

The app of the Russian government newspaper is displayed on an iPhone screen showing Russian President Vladimir Putin during his speech in the Kremlin in Moscow, Russia, Tuesday, Feb. 22, 2022. As the West sounds the alarm about the Kremlin ordering troops into eastern Ukraine and decries an invasion, Russian state media paints a completely different picture. It portrays the move as Moscow coming to the rescue of war-torn areas tormented by Ukraine's aggression and bringing them much-needed peace.

Russian troops continued their assault on Ukraine Thursday, and President Joe Biden issued a new round of economic sanctions meant to punish Russian President Vladimir Putin.

The impacts of that violence have had a ripple effect around the world, and while the invasion might be happening about 6,000 miles away from Houston, the city's oil and gas companies are poised to profit from the increased oil prices caused by the conflict.

Meanwhile, drivers will likely pay more to fuel up their cars.

Energy experts say the oil market is a global one, and what happens in one oil-producing nation — like Russia — sends ripples around the world.

“This is a war happening in the heart of Europe,” said Claudio Galimberti, senior vice president of analysis with Rystad Energy. “It carries a lot of risks on top of the oil and gas risks – but the oil and gas risk is probably one of the most important right now because Europe is depending on Russian exports, both for oil and gas.”

Europe gets most of its oil and gas from Russia. Experts say any disruption to the supply of oil coming from Russia is expected to send prices even higher.

“Let me be blunt: this is a nightmare scenario for the consumer," Galimberti said, "because the inflation rate in the United States and in Europe is already at the highest level in – what – 40 years? So we’re talking about a 7% inflation rate with the spike in oil prices, it’s only going to go up further from here."

Galimberti noted that while consumers will see increased prices, oil producing countries and companies will pull in more profit: "The Texan producer will benefit from these very high oil prices," he said.

The oil market is reactive, University of Houston Energy Fellow Ed Hirs said — meaning spikes or drops in prices could be short-lived.

"Domestic oil producers will profit," Hirs said, " but it depends upon the amount of time that these sanctions or interruptions remain in place. If peace were to break out quickly, then the oil market would settle down very quickly."

On Thursday President Joe Biden reiterated existing sanctions against Russia and announced new ones in reaction to the invasion. However, analysts say the current slate of sanctions are unlikely to dampen the oil supply coming out of Russia.

Leading up to the invasion oil prices were already high, with West Texas Crude trading above $90 per barrel. That's because demand for oil is returning as economies recover from the pandemic, but global supply has not increased at the same rate. Those high oil prices have helped Houston's oil and gas industry rebound from historic losses in 2020.

On Thursday, West Texas Crude nearly hit $100 per barrel following news of Russian troops entering Ukraine, but retreated back to the low $90s later in the day.

The president of a major trade and lobbying group, the Texas Oil and Gas Association, said the current tensions underscore the importance of domestic energy production.

“Texas is a key player in ensuring energy security and stability,” said TXOGA president Todd Staples. “Not only here at home, but more importantly, recently for European allies through liquefied natural gas exports, because of Texas’ abundance of natural gas combined with a robust energy infrastructure.”

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