/ world today news/ Disruption of supply chains and trade-economic ties is already having a serious effect on the world economy. But the consequences will be much greater.
On March 15, 2022, the IMF published a paper by a group of authors stating that the impact would be along three main lines. First, higher prices for goods such as food and energy will further increase inflation, which in turn will reduce incomes and put pressure on demand.
Second, neighboring economies in particular will face disruptions to trade, supply chains and remittances, as well as a historic increase in refugee flows.
And third, declining business confidence and increased investor uncertainty will put pressure on asset prices, tightening financial conditions and potentially spurring capital outflows from emerging markets.[i]
Russia and Ukraine are said to be the main producers of sunflower commodities, and the disruptions have sent global prices, particularly oil and natural gas, soaring. Food prices soared and wheat hit record highs.
In addition to global spillovers, countries with direct trade, tourism and financial risks will experience additional pressure.
Economies dependent on oil imports will face larger budget and trade deficits and increased inflationary pressures, although some exporters, such as those from the Middle East and Africa, could benefit from higher prices.
Sharper increases in food and fuel prices could increase the risk of unrest in some regions, from sub-Saharan Africa and Latin America to the Caucasus and Central Asia, while food insecurity is likely to increase further in parts of Africa and the Middle East .
In the long term, the conflict could fundamentally change the global economic and geopolitical order if energy trade changes, supply chains shift, payment networks are torn apart, and countries rethink reserve currency holdings. Rising geopolitical tensions further heighten the risks of economic fragmentation, particularly in trade and technology.
Another article said food prices had already risen 23.1 percent last year, the fastest pace in more than a decade, according to inflation-adjusted UN data. The February index, which tracks prices for meat, dairy products, grains, oil and sugar, was the highest since 1961.
Now the conflict in Ukraine and sanctions against Russia are disrupting supplies and possibly production for the world’s two largest agricultural producers. The two countries account for almost 30 percent of global wheat exports and 18 percent of corn, most of which is shipped through Black Sea ports that are now closed.[ii]
The main buyers of Ukrainian grain in 2021 are Indonesia, Egypt, Turkey, Pakistan, Saudi Arabia and Bangladesh. They will probably have to urgently look for an alternative source of supply, as sowing in Ukraine this season is likely to be disrupted.
Over the past three weeks, news has been received about various sectors that are related to production on the territory of Ukraine.
A number of automotive concerns (and not only) in Europe buy electrical cables from Ukrainian enterprises. Now the supply is stopped, which threatens to disrupt the entire production process.
Electric cable in the ranking of Ukrainian export goods is technologically the most complex, so its further production will depend on the availability of the necessary components and on the maintenance of enterprises that are able to ensure the entire technological cycle in good condition.
Semiconductor production around the world has also suffered, as the main suppliers of the neon gas used in this high-tech production are Russia and Ukraine.[iii]
The Kryoin plant is located near Odessa and is engaged in the production and supply of such rare gases as neon, isotopes 20Ne, 21Ne and 22Ne, helium, xenon, krypton.[iv]
Another company specializing in such production, Ingas, is located in Mariupol.[v] Now the production process of both has been completely stopped.
The metallurgical industry, which is also concentrated in Mariupol, and whose products were supplied to many countries – pipes, rolled sheets, fittings, cast iron, etc. now it does not ship to Europe or other regions of the world where there were customers. Because of this, a number of infrastructure and construction projects were on the verge of failure or freezing.
Iron and other ores in terms of foreign sales were in line with corn and wheat earnings. Now their mining and transportation has been stopped.
Sunflower oil is also on the list of products that create a domino effect. In previous years, Ukraine achieved a record export of this type of products. The top five buyers are India, China, the Netherlands, Iraq and Spain. And Russia is planning to introduce an export duty on sunflower oil, which will also affect world prices.
Bran, that is, the remains of cereals after squeezing oil from them, also makes it possible to receive about 1 billion dollars a year in the country’s budget. Ukraine manages to earn approximately the same amount from the sale of rapeseed.
Firewood is also one of the best products exported from Ukraine. In recent years, it has represented more than 10% of the global market for this specific category. It is likely that supplies from the western regions are still going on, but they will soon be stopped.
Mushrooms (champignons) also occupy a small export segment, mainly to Romania, Moldova and Belarus, but also to other countries.
For many years, an important element in the engine of the Ukrainian economy was the gastro workers, who in the neighboring country are called migrant workers. For example, in 2019, according to the National Bank of Ukraine, workers transferred there 12 billion dollars, while at the same time the inflow of foreign direct investment amounted to 2.5 billion[vi]
Now the banking system of Ukraine is not functioning, so this segment of the economy simply fell. And who will send money if millions of citizens have already left the country?
The burden of the influx of refugees now falls on the countries of the European Union. Add to this the collapse of Ukraine’s law enforcement system, in which criminal elements, including representatives of international groups, are beginning to actively manifest themselves.
This also applies to the EU, where in a number of cities the indigenous population already feels uncomfortable and experiences all sorts of inconveniences, from theft and damage to property to acts of open aggression.
It is quite natural to talk about the stock market of Ukraine, where the share prices of almost all national companies fell on February 22 after the recognition of the DPR and LPR by Russia. For example, Ukrnafta shares fell by 9%, and Ukrtelecom – by 12%. But now the stock exchange of Ukraine practically does not work.
As for Russia, the sanctions imposed and countermeasures taken by the Russian government will also reshape the global economy.
But if the voice of the people is already heard in the USA and the EU about the unreasonably high prices of fuel and electricity, then this does not threaten Russia. Just as there is no threat of a food crisis and some serious expenses. But Moscow may tighten the screws even harder on the West and those who support anti-Russian sanctions.
A recent discussion at the Council on Foreign Relations (US) is illustrative.[vii] For example, Karen Cariol-Tamber of Bridgewater Associates noted that “Russia is well aware of its power.”
“She is aware of which goods are insignificant to her income balance, which do not make a lot of money but are of great importance to the whole world because they are the main supplier of a small group of goods,” she added.
“So it seems they [руснаците, б.р.] can thus block the entire supply chain. And then we move to the oil markets, which are very politically sensitive in countries like ours, because simply higher oil prices are extremely regressive,” Cariol-Tamber adds.
“So we’re already living with the highest inflation we’ve seen in about forty years,” Tamber concludes.
BlackRock’s Isabelle Mateos and Lago, who also took part in the discussion, noted some of the nuances affecting the global financial and economic system, saying that “we are in a new environment where we know that things can happen that were considered unthinkable”.
“And it is not entirely clear that there are far better alternatives to the current set of reserve currencies today,” she added.
“And by the way, for the largest reserve holder in the world, which is China, the yuan is certainly not an option because it is not a reserve currency. And so that central bank has an even bigger problem than any other in terms of financing of new reserve assets,” says Mateos and Lago.
“But I would say that most of the feedback I’m hearing now from reserve currency watchers is, you know, the old security mantra. Liquidity, profitability — that’s what they’re looking for in foreign reserves,” she said.
“There’s been a little bit more focus on yield lately because bond yields are low across the board,” Mateos and Lago said.
“And I think all of a sudden people are realizing that security and liquidity really matter and they’re going to take a much closer look at what they’re holding on their balance sheets,” she adds.
Although Lago is clearly misleading about the yuan since it has been in the IMF basket since 2016, her words about the unthinkable signal the collapse of US unipolar hegemony. Therefore, any measures by Russia, up to a temporary suspension of gas and oil supplies, if it helps the dominance of the dollar and if it can “cure” European politicians, would be very useful.
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