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Thursday, March 28, 2024

Ukraine war fallout

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A Russia-Ukraine war will have a global economic fallout that most nations, including the Philippines, may not avoid. A deterioration in the current impasse—or war—will easily send the prices of oil and two other major commodities skyrocketing from their current high levels.

Russia is one of the world’s biggest oil and gas producers while Ukraine serves as the main transit route for Russian natural gas sold to Europe. There is always a threat Russia could halt its energy supplies to Europe if the conflict escalates. A Western boycott of Russian oil and gas exports may also push global oil prices to uncharted territory and, consequently, threaten the world economic recovery. European countries, in the meantime, will have to secure an alternative source of natural gas that powers their industries and homes.

The war repercussions are not limited to energy supplies. Russia is the world’s biggest wheat exporter while Ukraine ranks as the fourth-largest shipper of the commodity. The two nations combined account for almost a third of wheat’s world trade. Ukraine, meanwhile, is the world’s fourth-largest corn exporter and accounts for about 22 percent of the global trade.

A squeeze in the global supply of oil and natural gas, and major commodities, such as wheat and corn, will hit developing nations such as the Philippines hard. The inflation rate here and in the rest of the world will inevitably rise further with these supply shocks. Oil prices currently are at high levels and they will surge more as global economic recovery picks up amid the declining COVID-19 cases worldwide.

For the Philippines, higher petroleum prices will exert pressure on transportation fares and labor wages to increase. The inflationary spiral will extend to the prices of bread and pork, whose production is dependent on corn feeds.

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Any geopolitical conflict such as the Russia-Ukraine crisis highlights the need to be self-sufficient. The Philippines may be far from achieving energy independence, but it must attain food security to weather the impact of natural disasters and offset global supply shocks.

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