Friday, March 11, 2022

Oliver Hartwich: The economic consequences of the war

Putin’s war is a tragedy for Ukraine. Yet its economic implications will be felt far beyond Ukraine’s borders for years to come.

Russia’s actions have set in motion a chain of events that could plunge the world into a serious economic crisis.

The war is not only fought in Ukraine but also in the world’s energy markets.

Interdependencies are strong. Parts of Europe rely on Russian oil and gas, just as Russia relies on energy export revenues. The US and UK announced embargoes on Russian goods this week, and the Kremlin threatened to shut off Europe’s gas supply.

Energy prices will rise as the West scrambles to find alternative fuel suppliers, even in countries hostile to the US like Iran and Venezuela. From US$90 a barrel in mid-February, oil has risen to around US$130 today. It could rise even further.

Another concern is food prices. Ukraine and Russia are major exporters of maize and wheat. It is unclear whether there will be a large harvest this year, and no major shipping lines service Black Sea ports.

The price of wheat has skyrocketed as a result. In January, it was about US$7.50. Now it is US$13. It is a catastrophe in many poorer countries where households spend most of their budgets on food. It could trigger famines.

An increase in fertiliser prices - another major export from this region - will exacerbate agricultural crises. The fertiliser price in Britain increased by almost 50% in the past week alone.

Metals and rare earths are also a concern. Nickel, for example: From US$18,400 per tonne in January to US$80,000 today. Best of luck to any industry needing such resources.

The war has business implications everywhere. Airlines must make huge detours to avoid restricted airspace. Car manufacturers are closing factories because some of their parts suppliers are based in Ukraine. McDonald’s lost 9 percent of its global revenue from leaving the Russian market.

This is before we get to the question of how central banks will respond. Will they fight the wave of massive inflation? Or will they support their struggling economies?

And this is also before the small but real possibility that the war could involve other countries or – perish the thought – become nuclear.

New Zealand cannot influence much of this. But at the very least, we must know what is happening out there – and our media and our politicians must tell us.

Not even in New Zealand is this crisis far away. It will affect us all.

Dr Oliver Hartwich is the Executive Director of The New Zealand Initiative think tank HERE. 


John S said...

Not only will we continue to see energy price increases, but will we be looking back in 6 months time with significant shortages and lamenting the closure of Marsden Point refinery and Government's tacit support for that decision without any Plan B? I doubt they have even thought about that.

Ray S said...

Yes John S. Unintended consequences. No oil or gas exploration, (no consultation) close Marsden refinery, high govt taxes on fuels,etc.etc.
Skyrocketing fuel prices effect everything we do, wear or eat.
For NZ, the inflation resulting from high fuel prices will hurt specially low income earners.
We had the opportunity to be almost self sufficient with fuels.
Cindys "nuclear moment" may turn out to be just that for us.

Anonymous said...

Otto von Bismark: “Never go to war with Russia. They will defeat your every strategem with unpredictable stupidity.”

America has shut the door on Russia: Trump ransacking consulates and diplomat’s houses, Biden expelling diplomats from the United Nations, America’s contribution to the Security Council is loud threats and insults.

Tens of thousands of Russians are stranded all over the world, because their flights home have been cancelled without refund, and their Visa cards are frozen. Is this necessary?

The war was widely advertised in December. Sanctions were ready to go regardless of events. Bismark’s policy was to talk to your enemy politely, and keep the door open.

Alan Davidson

Allan said...

The current Russian invasion of Ukraine is being milked for all it is worth, by hopeless, Globalist Agenda governments. The U.S.A as an example, was energy self sufficient before The Biden Bunch took control. then we have Arderns Array of Mad-people, determined to destroy our energy industry, while insisting that our productive food producing land should be sold to overseas interests, & planted in soil destroying pine trees, because otherwise the world might be 2-degrees warmer by 2050, or other such nonsense. Not to mention the thousands of hectares now covered in houses, because wealthy immigrants flooded in under the previous National government, just to make the G D P figures look good. The war situation will have a bearing on the cost of living. But this pales in comparison to the 'Wests' government stupidity.

KP said...

I'm sure the Russians will remember Bismark''s comment as they deal with Germany.

This is not Russia's fault, Putin has always been very clear on what he wants done about the USA and Ukraine, and underneath the hysterical propaganda from the Yanks lies the Biden family and their pet cash-cow Ukraine.

Perhaps the Americans should have talked before launching the vast range of sanctions they had prepared. As it stands, they will lose more than Russia. The Americans will lose their free ride on the rest of the world as the $US becomes second-tier, they will have to work for a living instead of just printing dollars. Russia is used to the standard of living that will prevail, but it will be a shock to the latte-drinkers of the West.

Petrol in Russia is Au60c a litre... Anyone want expensive electric cars and solar power now? The West will break itself while Russia and China use cheap energy. This is the beginning of the end of the West.

John S said...

What scientific proof do you have Allen that pine trees destroy soils?

Charles said...

The US has a couple of "Think Tanks" employed by their governments to play draughts, while Russia plays 3 dimensional chess. If the Americans look like losing, war can be initiated as the reliable method of response. It would appear the US has truly shot itself in the foot this time. The petrodollar will vanish and take US hegemony with it. We can only pray that the dying of this evil beast will not result in the rest of us being dragged to hell along with it.