What harm has the conflict between the United States and Ukraine caused to the world economy？
Xinhua News Agency, Beijing, May 26th (international observation): What harm has the conflict between Russia and Ukraine caused to the world economy?
Xinhua News Agency reporter Gao Lu Xu Chao
The epidemic has not dispersed, and conflicts between Russia and Ukraine have been repeated. While the United States and other western countries sent weapons to Ukraine, they waved sanctions against Russia and blocked the Russian economy in all directions in the fields of food, energy, finance and manufacturing. The negotiation process between Russia and Ukraine was frequently frustrated.
Analysts believe that Russia and Ukraine have a high degree of economic dependence with many countries and have an important impact on the world economy through the fields of food and energy. The United States is constantly "arching fire", which aggravates the risk of long-term regional conflicts. The world economy that has experienced the impact of the epidemic has not healed, and its difficult recovery faces more challenges and even crises.
Spread of energy security risks
Energy export is a key area for the United States and other western countries to sanction Russia. The United States took the lead in announcing on March 8 that it would stop importing oil, natural gas and coal from Russia. The European Union announced on April 8 that it would stop importing Russian coal. The new round of sanctions submitted by the European Commission recently included an oil embargo on Russia.
Russia is a major participant in the global energy market, accounting for 18%, 11% and 10% of global coal, oil and natural gas exports respectively. At present, about 40% of natural gas, 30% of oil and nearly 20% of coal imported by the EU come from Russia. Energy sanctions against Russia are constantly increasing and tend to be long-term, which sounds an alarm for global energy security.
First of all, the energy circulation is limited, and the supply chaos intensifies the pressure on the world economy, especially in Europe. Norwegian Lyestad Energy Company predicts that if Russian deliveries stop, Europe will have a gas shortage of 155 billion cubic meters every year.
As a countermeasure against the West, Russia asked "unfriendly" countries and regions to use rubles to settle natural gas from April, and announced at the end of April that it would stop supplying gas to Poland and Bulgaria on the grounds of rejecting this request, which once stimulated the European gas price to rise by 20%. Bloomberg reported that as of mid-May, 20 European companies had opened ruble accounts in Gazprom.
Secondly, the price volatility has risen, and energy inflation has aggravated the impact of the global economy and people’s livelihood. Many institutions predict that international energy prices will remain high in the next few years. The World Bank reported in April that the increase in energy prices has reached the highest level since the oil crisis in 1973, and it is expected that the increase will exceed 50% in 2022, and the soaring energy prices may continue until the end of 2024.
Economic growth in the euro zone slowed down in the first quarter of this year, and the inflation rate reached a record high in April, in which energy prices rose by 38% year-on-year, which became the main cause of inflation. The European Commission predicts that if Russia’s natural gas supply is seriously interrupted, the European economy will fall into a comprehensive "stagflation".
While Russia’s energy exports are limited and Europe suffers from supply shocks, the United States is quietly making profits. Taking advantage of the serious shortage of natural gas supply in Europe, the United States quickly reached an agreement with the European Union to provide at least 15 billion cubic meters of liquefied natural gas to the European Union this year, which means that US natural gas exports to Europe have increased by two-thirds.
The food crisis is approaching.
The protracted conflict between Russia and Ukraine has brought great risks to food supply. Beasley, executive director of the World Food Programme, believes that the Russian-Ukrainian conflict is "one disaster exacerbates another". Considering the weight of Russia and Ukraine in the world agricultural trade, more and more institutions and media mention the "food crisis", believing that its global impact may exceed expectations, and the harm is mainly reflected in three aspects.
First, it severely blocked production and squeezed grain production capacity.
According to the statistics of the Food and Agriculture Organization of the United Nations, Russia and Ukraine are the world’s largest and fifth largest wheat exporters respectively. Together, the two countries account for 19%, 14% and 4% of the global supply of barley, wheat and corn respectively, accounting for more than one third of the global grain exports. In the past three years, the two countries accounted for about 30% of global wheat exports, 20% of corn exports and more than half of sunflower oil exports.
Take Ukraine, the "European granary", as an example. The conflict between Russia and Ukraine caused the wheat sown in the country a few months ago to be unable to be harvested, while the corn and sunflower just sown during the conflict could not be fertilized. Market participants predict that Ukraine’s grain production may be reduced by more than 50% in the current season.
Russia is the world’s major producer of chemical fertilizers, accounting for 13% of the world’s total output. Russian fertilizer exports are restricted by US sanctions, which leads to a sharp rise in global fertilizer prices. Farmers in Brazil, the United States and other agricultural countries are forced to reduce fertilizer consumption, which may affect future harvests.
The second is to interfere with trade circulation and aggravate food inflation.
The Russian-Ukrainian conflict disrupted port operations and superimposed Western sanctions, which seriously hindered Russian-Ukrainian grain exports and helped raise global food prices. In some European countries, daily necessities such as flour, edible oil and canned vegetables are sold in limited quantities, and the high price makes some people in the Middle East unable to eat meat for a month.
Compared with rising prices, underdeveloped areas are facing a worse situation. More than 35% of the world’s population is mainly based on wheat, and Egypt, Turkey, Bangladesh and Iran import more than 60% of wheat from Russia and Ukraine. Qu Dongyu, Director-General of the Food and Agriculture Organization of the United Nations, said that about 50 countries and regions in the world are highly dependent on Russian and Ukrainian wheat supply, including some least developed countries or low-income countries in Africa and Asia.
The third is to promote protectionism and worsen the supply gap.
In response to the shortage of domestic supply and rising prices, some major agricultural products countries have successively introduced export restrictions. According to the data of the International Food Policy Research Institute, after the outbreak of the conflict between Russia and Ukraine, by the end of April, the number of countries implementing food export control measures had increased to 23. In April and May, Indonesia, the world’s largest palm oil producer, and India, the world’s second largest wheat producer, announced the suspension of palm oil and wheat exports respectively.
Aditya Matu, chief economist of the World Bank in East Asia and the Pacific, believes that the current global food trade is in a "prisoner’s dilemma", and some countries restrict food exports, which will not only help to alleviate their own food prices, but will further push up global food inflation.
The risk of social unrest has intensified.
Food and energy are related to the national economy and people’s livelihood, and the social risks brought by their double impacts should not be underestimated. The joint statement issued by the World Bank, the International Monetary Fund, the World Food Programme and the World Trade Organization in April pointed out that rising food prices and supply shocks may aggravate social tensions in many countries.
Affected by the epidemic and the conflict between Russia and Ukraine, an economic crisis broke out in Sri Lanka, a South Asian country, in March. The shortage of materials, high prices, tight power supply and devaluation of the local currency triggered public protests, and the country’s president declared a state of emergency twice in April and May.
The situation in Africa is also not optimistic. UN Secretary-General Guterres said earlier this month that the conflict between Russia and Ukraine has intensified the "triple crisis" of food, energy and finance in Africa, which may lead to social unrest in some areas.
Even in relatively rich Europe, there is a risk that people’s livelihood crisis will turn into social problems. In order to protest against the rising fuel prices, the Barcelona Taxi Drivers’ Association and the Spanish Truck Drivers’ Union organized marches and strikes respectively, which once interrupted the supply of local goods and raw materials.
In recent months, international organizations and institutions have lowered the global economy, trade growth expectations and other key indicators. International observers believe that the United States’ push for sanctions against Russia and the tension between Russia and Ukraine are making the world pay the bill.
Nuriddin Sakel Ahmadi, head of an Afghan food trading company, lamented: "The United States thought it only sanctioned Russia, but in fact it sanctioned the whole world."