Oil, Natural Gas, Wheat... Global Economic Shockwave Approaches

[Asia Economy Reporters Byunghee Park and Hyunjung Kim] As the Ukraine crisis escalates to its worst scenario, the risk of global inflation due to rising oil and natural gas prices is expected to increase, along with heightened uncertainty in financial markets. Russia is the world's largest exporter of natural gas and the third largest exporter of crude oil, exerting powerful influence on the global energy market. It is also a major supplier of minerals such as nickel and palladium.

Russia is also the world's largest wheat exporter. Ukraine, known as the "breadbasket of Europe," has significant exports of corn and wheat, so the Ukraine crisis is expected to have a considerable impact on rising food prices.

On the 21st (local time), when Russia recognized the independence of Ukraine's Donetsk and Luhansk regions, Brent crude futures on the London ICE Futures Exchange closed at $95.39 per barrel, up $1.85 (1.98%) from the previous trading day. Brent crude continued its upward trend in after-hours trading, surpassing $97 per barrel. With the New York financial market closed for "Presidents' Day," West Texas Intermediate (WTI) crude futures also surged about 3% in after-hours trading.

The Russian stock market MOEX index plunged 10.5% compared to the previous trading day. Bloomberg reported that this was the largest drop since the Crimea crisis in March 2014. The ruble also fell more than 3% against the dollar.

The United States and Europe have warned that they will respond strongly if Russia violates Ukraine's sovereignty and territorial integrity. If major Russian energy companies are included in sanctions, shortages in crude oil and natural gas supply will be inevitable.

As Russia, the world's largest mineral exporter, is likely to tighten supply, the West has taken measures to mitigate the impact on Europe, such as increasing liquefied natural gas (LNG) supplies in case President Putin retaliates. Prices of raw materials like palladium used in mobile phones and automobiles, as well as nickel used in steel and electric vehicle batteries, have already surged.

The New York Times (NYT) predicted that the Ukraine crisis will hit low-income and underdeveloped countries more severely, as they are vulnerable to rising prices. These countries face not only energy costs but also the risk of soaring food prices. Forty percent of Ukraine's wheat and corn exports are destined for the Middle East and Africa.

Professor Ian Goldin of Oxford University in the UK explained, "The most vulnerable to inflation are the poor," adding, "Their food and heating expenses account for a larger share of their total income than anyone else."

However, there is also a view that the Ukraine crisis is not as destructive compared to COVID-19. The NYT pointed out, "Russia, with a population of 146 million and vast nuclear weapons, does not have as large an impact on the global economy compared to China." Jason Furman, a Harvard professor and former advisor to U.S. President Barack Obama, likened Russia to a "big gas station," saying, "Apart from oil and gas, Russia is not tremendously important in the global economy."

This content was produced with the assistance of AI translation services.