‘For a lot of families, it couldn’t come at a worse time’: Ukraine-Russia crisis is a serious problem for Americans struggling with rising energy costs

‘For a lot of families, it couldn’t come at a worse time’: Ukraine-Russia crisis is a serious problem for Americans struggling with rising energy costs

As Russia sends troops into breakaway regions of neighboring Ukraine and President Joe Biden responds with a first wave of economic sanctions, one threat to American consumers thousands of miles away could be an “energy price shock.”

Biden tried bracing Americans for potential gas-price shocks Tuesday afternoon, saying, “Defending freedom will have costs for us as well, here at home. We need to be honest about that.”

The national average for a gallon of gas was $3.53 as of Tuesday, up four cents from a week ago, according to AAA. “Russia is one of the leading oil producers globally, behind only the United States and Saudi Arabia. And if they choose to withhold their oil from the global market, such a move would eventually be reflected in higher gas prices for American drivers,” said AAA spokesman Andrew Gross.

Biden said Tuesday he plans to “limit the pain that the American people are feeling at the gas pump.”

But at a point when millions of Americans are already struggling with high inflation, rising gas prices, past-due utility bills and the absence of monthly Child Tax Credit payments to absorb the costs, some observers worry the escalating crisis Russia-Ukraine may deepen debts of consumers who only have so much money for their energy expenses — whether that’s keeping the lights on or their car running.

The escalating crisis Russia-Ukraine may deepen debts of consumers who only have so much money set aside for gas and heating.

“For a lot of families, it couldn’t come at a worse time,” said Mark Wolfe, executive director of the National Energy Assistance Directors Association (NEADA). The organization represents the state programs carrying out the federally-funded Low Income Housing Energy Assistance Program.

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Consumers owed an estimated $22.2 billion at the end of 2021 in utility arrears, an increase from $20.1 billion at the end of 2020, according to NEADA projections. Past-due utility bills peaked around $30 billion March 2021 as consumers absorbed the brunt of the pandemic’s energy costs, Wolfe said. Families typically owe around $12 billion at the close of winter, Wolfe said.

More than 21 million households are behind on their bills, owing a national projected average of $1,060, the organization said.

There’s also the approaching end of yearly moratoriums that halt shut-offs in cold weather states during the winter. Those moratoriums start lifting in March, Wolfe said. “There’s a lot of things coming together that are not good,” he said.

Leading up to the Ukraine-Russia crisis, many consumers were already financially fragile and potentially higher gas prices will be tough for them to handle, said Steve Cicala, an economist and associate professor at Tufts University.

He’s seen that fragility on display: Illinois utilities served disconnection notices to 3.4% residential accounts from September 2020 to December 2020, according to his article in the Journal of Public Economics. The chances of late fees and disconnection notices were “multiples higher” in predominantly minority communities, his research found.

Elevated gas costs in America may pale in comparison to higher costs for European countries with a heavy dependence on Russian gas.

In the big picture, for right now at least, the Ukraine-Russia crisis is not going to pose a major risk to America’s economy, some experts emphasize. The potentially elevated gas costs in America may pale in comparison to higher costs for European countries with a heavy dependence on Russian oil and gas.

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“Continued turmoil around Russia can be expected to raise gas prices, which are already extremely high,” said Professor Andrew Kleit, an energy economist teaching at Pennsylvania State University. Utility prices are driven by natural gas prices and natural gas markets in America are not directly tied to European gas markets, he noted.

An RBC Capital Market note Tuesday said, “Energy could be clear collateral damage of a conflict and in numerous scenarios, higher gas prices in Europe are clearly a risk — even from already elevated levels. While US prices remain mostly insulated, global balances are tight, most worryingly in Europe.”

But when it comes to things being tight, a closer look shows many American households don’t have much wiggle room in their own energy costs whether it’s keeping their lights on or their car running.

Two in ten Americans (20.7%) said in late January and early February they haven’t been able to pay an energy bill in full over the past 12 months, according to ongoing research from the Census Bureau. That’s drifted up from the 20.1% who said the same in late July and early August.

Two in ten Americans said in late January and early February they weren’t able to pay an energy bill in full over the past 12 months.

And then there’s inflation. Year-over-year price inflation reached 7.5% in January, according to the Consumer Price Index. But energy costs outpace the average, with a 27% year-over-year increase in the gauge’s energy index, which includes the cost of electricity, fuel oil and utility gas service. By itself, the price of gasoline increased 40% from a year earlier, the index data showed.

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While there’s ways to save money on utility costs, consumers can’t seek deals to keep their house warm in the way they can look for off-brand groceries.

As prices continue moving up, the payments under the enhanced Child Tax Credit payment ended in December. Many parents used the monthly direct cash payments for their utility bills. Three in ten recipients (29%) said they used at least some of the money for utility bills, according to research from the Tax Policy Center.

Even if gas prices go up, eligible households can still defray their overall energy costs by applying for assistance through programs like the Low Income Housing Energy Assistance Program.

Congress earmarked $4.5 billion for the program in the $1.9 trillion American Rescue Plan on top of the normal appropriations, Wolfe said. There is still “enough to get a lot of people back on track,” Wolfe said.

But still, he added, “We weren’t expecting this. We weren’t expecting another bad news cycle.”

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