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Wednesday | 15 January 2025 | Epaper

Impacts of the Ukraine war on global economy

Published : Saturday, 5 March, 2022 at 12:00 AM  Count : 847
Md Zillur Rahaman
Md Zillur Rahaman

Md Zillur Rahaman

War does not bring welfare to any country or nation. Just as people cannot live alone, so a country can never live alone. It can be said that this world is a family, every country is a member of it. It is everyone's wish that everyone will run the country while maintaining mutual love and harmony.

But as soon as war breaks out anywhere in the world, the market for fuel products first becomes unstable and uncontrolled. Because, the supply and production system is disrupted. If the Ukraine crisis is temporary, the fuel market will not be up for long.

But if the crisis persists, things will get worse, petroleum products, oil and gas prices will rise. This is even worse news for an energy importing country like Bangladesh. The government will want to increase oil and gas prices to handle subsidies. Doing so will reduce the purchasing power of the people and it will have a negative impact on the economy.

Russia's aggression in Ukraine is a huge blow to the world economy, which has yet to fully recover from the effects of the epidemic. The conflict is already the most serious crisis and aggression for Europe since 1945.

Russian forces are carrying out air strikes, occupying military bases and advancing on Kiev as civilians flee. Analysts say the capital, Kiev, could collapse at any moment and its air defenses run out. After the invasion of Ukraine, the world economy has already begun to tremble by raising fuel prices.

For the first time since 2014, oil prices exceeded US$100 per barrel, while European natural gas has risen by 62%. JP Morgan, a US multinational investment bank, predicts that the price of fuel oil will rise to US$125 per barrel in the second half of this year and to US$150 in 2023. Earlier, in 2008, the price of fuel oil rose to US$147 per barrel, the highest ever.

As Ukraine struggles to survive, Western governments are also taking sanctions to punish Russia. They want to increase the impact of the conflict on their own economy. US President Joe Biden and his European allies have already announced new sanctions on Russian banks, the dollar trade and the Swift network.

The COVID-19 epidemic has already created high inflation and worrisome financial markets in the world economy, and the current war in Ukraine will only make matters worse. Thus, the economic growth of many countries is under threat.

Households that spend a large portion of their income on fuel and food will have the opportunity to spend less cash on other products and services. The submerged and risky market will add another tug of war, hurting wealth and confidence and making it harder for firms to use the funds to invest in future.

Market analysts say Russia could cut back on oil and natural gas exports to the USA in retaliation for sanctions imposed by the USA and its Western allies. Russia is the world's second-largest supplier of 10 percent of the world's oil.

However, Saudi Arabia is the largest exporter of oil. Russia is not only the world's largest supplier of oil but also the world's largest supplier of natural gas. Experts fear that the country could cut off gas supplies to Europe at any time. This will have a big impact on the world economy. Europe is dependent on Russia for about 35 percent of its natural gas. In 2020, Russia's gas exports to Europe declined and then the import of LNG from the spot market increased. As a result, gas prices rise abnormally.

Russia-Ukraine war could push gas prices higher. The USA recently said it was considering importing LNG from other parts of the world, instead of Russia. In this case, the countries of the Middle East and North Africa are being given priority. This will further increase the price of the product in the spot market. As a result, small LNG importing countries like Bangladesh will suffer.

The central banks in the affected countries face a two-pronged challenge - controlling prices and keeping their economies growing. The US Federal Reserve and the European Central Bank are already preparing to tighten their monetary policy. They are being forced to reconsider the crisis in Russia. How big the conflict will be in the world economy will depend on its longevity and scope, the severity of Western sanctions and the possibility of Russian retaliation.

Analysing the impact of the recent situation in Russia and Ukraine, it has been seen that these two countries are the world's leading producers and exporters of food grains and petroleum products. With the outbreak of war between the two countries, importers are trying to get goods from alternative countries. There has been a shortage in the supply of wheat, maize and sunflower oil.

Russia and Ukraine account for about 30 percent of the world's wheat exports. Besides, about 20 percent of maize is exported from these two countries. Wheat, corn are used to produce animal food starting from baby food. These two countries account for 80 percent of sunflower oil exports. As a result, traders fear that if tensions between Russia and Ukraine persist, there will be a shortage of wheat and corn this season. As a result, the prices of these products will go up.

Several countries, including the USA, the EU and Japan, have imposed new sanctions on Russia over its attacks on Ukraine, most of which are financial matters. When war breaks out in a country, its effects are more or less the same. There are many kinds of crises and problems and this is normal. Overall, the supply of food grains, gas, fuel oil, chemical fertilizers and other important commodities is expected to be severely disrupted.

Meanwhile, prices of fuel oil, gas and chemical fertilizers have risen to record levels in the last few years. If the prices of these products increase, the production cost of agricultural and industrial products will increase in the country. Transportation costs will also increase. Many ships do not want to go to the Black Sea, which is directly contributing to the rise in prices. The price of food grains imported and exported through this route is increasing. The COVID-19 epidemic has already reduced the purchasing power of people in many parts of the world.

As a result, experts believe that if food prices rise again, it will increase the crisis. Russia meets 35 percent of Europe's natural gas demand. Gas prices have begun to rise in the wake of the war. On the other hand, as a result of the war, the western business organizations have started falling into crisis. Because they are involved with Russia in many ways. Rosneft, the country's largest oil producer, owns 19.85 percent of BP, a UK multinational energy company. One third of the company's total production comes from Rosneft.

However, it is not clear what impact this could have on Bangladesh. But what will Bangladesh do if this war is prolonged and the scope of sanctions on Russia increases? Bangladesh has to plan ahead. It can hamper the RMG export to Russia and the projects implemented in Bangladesh by Russian government. The World Bank and the International Monetary Fund, however, have warned that Russia's aggression in Ukraine could have a devastating effect on the global economy. They also warned that Russia's aggression would "severely hamper" the pace of global economic recovery.

Md Zillur Rahaman,
Banker and Columnist


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