Rising Tensions in Ukraine... What Are the Domestic Market Impacts by Scenario?

Prolonged Global Supply Chain Disruptions Expected if Full-Scale Conflict Unfolds
South Korea's Companies Face Increased Cost Burden Due to Rising Oil Prices

[Asia Economy Reporter Minji Lee] As Russia deploys troops to the Donbas region in eastern Ukraine, fears of war are becoming a reality. Financial market experts predict that if armed conflict breaks out between Russia and Ukraine, prices of raw materials such as oil and metals could surge sharply, dealing a direct blow to certain industries including refining, chemicals, and semiconductors.

According to a report published on the 22nd by Shinhan Financial Investment, the future scenarios between Russia and Ukraine can be categorized into △full-scale war △localized conflict △prolonged tension △peace agreement. Among these, the scenarios reflected in the financial markets are full-scale war and localized conflict.

Full-scale war implies Russia taking military action and Ukraine joining NATO. Should such a situation occur, the global economy is expected to face downward pressure centered on Europe. Ukraine is one of the world's top three granaries, exporting 60-70% of its production of grains such as corn, wheat, barley, and soybeans, and it also holds 5% of the world's mineral resources. Notably, 30% of the natural gas pipelines heading to Europe are located there, so if war breaks out, the rise in raw material prices will inevitably exert downward pressure on the global economy.

Hagunhyung, a researcher at Shinhan Financial Investment, emphasized, "If Russian natural gas supply is cut off due to war and raw material supply in the conflict zone is reduced by about half, energy and grain exports could be hit by approximately 5-10%." He added, "Disruptions in the supply of rare metals used for semiconductor raw materials and operational difficulties at local factories will prolong global supply chain turmoil."

In the case of localized conflict, energy supply disruptions are expected to be somewhat limited. Prices of non-ferrous metals and agricultural products, which Ukraine primarily produces, may spike in the short term but are expected to stabilize within 1-2 months. Researcher Hagunhyung stated, "This could follow a pattern similar to the 2014 Crimea crisis, during which the impact of Western-led economic and financial sanctions was minimal," and added, "The existing trends in the economy and financial markets could be maintained."

Considering these outcomes, the aspect that could affect the domestic market is energy. As of last year, Ukraine's export and import shares were 0.1% each, while Russia's were 1.5% for exports and 2.8% for imports. Eighty percent of Russia's imported products are mineral fuels. Among imports of this category, Russia accounts for 10%, ranking fourth after Saudi Arabia, the United States, and Australia.

Additionally, the domestic market is expected to feel a significant burden from rising prices due to high dependence on crude oil. Even a $10 increase in oil prices would raise import costs by $10 billion. Researcher Ha said, "The rise in international oil prices could expand cost pressures across industries, damaging margins mainly in traditional sectors such as refining, steel, chemicals, shipbuilding, automobiles, and construction," and added, "If oil prices reach $10 billion, the growth rate could drop by 0.3 percentage points, so if tensions escalate causing energy prices to rise, the domestic market will be indirectly affected."

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