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Forecasting the impact of sanctions on Russia for Kentuckians

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Posted at 5:55 PM, Mar 08, 2022

MERCER COUNTY, Ky. (LEX 18) — Russia's decision to invade, and launch a war, in Ukraine is having a global impact.

On Tuesday, President Biden placed a ban on the import of Russian oil imports, designed to crush Russia's economy in the wake of the military invasion.

Biden warned that already-soaring gas prices will likely send them higher, and have an impact on a number of American goods and services.

"I'm kind of in general just a little concerned for all of us in the US... from now until the end of the year," said Flo Morlote.

Morlote is the owner of Kountry Kupboard in Mercer County.

Even before Russia attacked Ukraine and subsequent ripple effects, Morlote says he and some customers were upset about attempts from Washington lawmakers to answer concerns about inflation and increasing costs.

The rise in gas prices is only the latest issue staring at the business. Morlote says he predicts suppliers will cut the number of delivery trips.

"There's one company I get orders from three times a week. I expect that to drop to one. And then I've got another vendor that delivers twice a week. I expect that to drop to one," said Morlote. "And I'm expecting a fuel surcharge, and prices in general, just going up. And we've taken a hit just because we don't want to raise our prices commensurately just to keep our customer base."

Morlote says he has seen the cost of wheat increase 25% in the past month, which will impact the products he sells. Between cost and supply chain issues, he says some customers are making unusually large purchases.

"And I had a lady yesterday order 500 pounds of wheat, just because of the concern she won't be able to get it later," said Morlote.

Russia is a global supplier of both wheat and gas, which means the imposing sanctions is having a global impact.

"Now the United States itself doesn't import very much in the way of Russian oil, but that doesn't matter," said Dr. Robert Farley, a lecturer at the University of Kentucky. "What matters is the impact on the global price of oil, both because of the tension and the mess associated with the conflict and because of the sanctions against Russia. That means Russia's oil is not reaching the market at the same levels that it has in the past. And that means the price of oil goes up, and so the price of gasoline goes up."

Dr. Farley teaches security and diplomacy courses at the University of Kentucky. He does not believe the hike in gas prices will be a long-term American problem.

"In the long-term, oil prices are going to come down because Saudi Arabia will step up production. You'll see more oil exploration in the United States, fracking in the Dakotas, and so forth, so the oil price is a short-term thing," said Dr. Farley.

Dr. Farley says that Russia does have a small presence in Kentucky's equestrian and bourbon industries, but he doesn't expect much of a trade impact with Russia for the Commonwealth.

In a time of kitchen-table concerns, the lecturer encourages Kentuckians to keep things in perspective.

"They're seeing their cities destroyed. They're seeing their families torn apart. They're seeing their country overrun by a neighbor. And absolutely that's something to keep in mind when you're worried too much about how much gas is costing," said Dr. Farley.