Concerns about energy and commodity markets being affected
The recurrence of tensions between Russia and Ukraine confuse the global economy
Russian President Vladimir Putin has fueled tension with Ukraine.
AFP
Ukrainian military preparations continue for fear of war.
AFP
Ukraine's grain may not reach many countries in light of the current crisis with Russia.
Reuters
picture
The escalation of tension between Moscow and Kiev, in light of Russia's mobilization of military crowds near the Ukrainian border, and in other countries in Eastern Europe, has raised global concerns about the impact on global energy markets, especially in light of the European excessive dependence on Russian gas supplies, in addition to other possible repercussions on exports. agricultural products from the Eastern European region to consumer markets all over the world.
However, most assessments indicate that it is unlikely that Moscow will invade Ukrainian territory, which will relatively relieve the panic of international markets due to the current military escalation, but the fragility of the situation in Eastern Europe, and the persistence of tensions between Russia and Ukraine remains a factor in continuing pressure on commodity markets. globally.
global panic
The escalation of tensions between Russia and Ukraine since the end of last year has caused sharp reversals on the commodity and metal markets, which are evident as follows:
1- Rising energy prices
Crude oil prices witnessed record increases during the months of January and February of this year, exceeding the barrier of 90 dollars per barrel, which is the highest level in the past seven years.
Prices may continue to rise in light of the military escalation between the two sides.
A sudden rise of up to $10 in the price of a barrel of crude oil is likely if Russia invades Ukraine, according to some estimates.
As for gas markets, tensions between Ukraine and Russia have caused a continuous rise in natural gas prices at the global level, especially in the European continent, which coincided with the lack of immediate supplies of Russian gas to the countries of the continent since late last year.
In light of the current developments, "Goldman Sachs" expects that the tight supply in the European gas markets will continue for the next three years, as it will have long-term effects on the ceiling of gas prices in Europe and the world.
2- Rising prices of agricultural commodities
Both Russia and Ukraine play a fundamental role in stabilizing global food security, and together they contribute about a quarter of global grain exports.
It is expected that Russia and Ukraine's wheat exports for the 2021-2022 marketing year will reach 23% of total global exports, according to estimates by Standard & Poor's.
As a result of fears of disruption to grain supplies due to ongoing tensions, wheat futures contracts have risen globally by about 10% since mid-January 2022, and corn prices during late January 2022 approached their highest levels since June 2021.
It should be noted here that the Russian-Ukrainian crisis is not the only factor affecting the recent rise in agricultural commodity prices. There are other considerations related to unusual weather conditions in a number of Latin American countries, which may affect the volume of corn supplies globally, in addition to the decline in Russian wheat exports. Because of the high export taxes, the imposition of quotas on the export of food grains.
3- Rising metal prices
Russia controls the production and export of a number of metals at the global level, including: aluminum, nickel, and palladium, and Russian-Ukrainian tensions have reinforced the upward trend in the prices of some metals, for example, aluminum and copper are trading, finally, near their highest levels in years. Last.
In the same context, Alcoa Corp., the largest aluminum producer in the United States, warned that tensions between Russia and Ukraine would increase concerns about the impact on aluminum production, and thus the possibility of an increase in prices, because Russia is the second largest producer. aluminum in the world, which exacerbates the continuous rise in energy prices at the global level.
4- Increasing demand for safe assets
Investors are increasingly resorting to safe investment havens, such as gold and the dollar, in light of the escalation of military tensions in Eastern Europe.
In this regard, gold prices reached during trading Monday, February 14, their highest level in three months, at a value of $ 1869.40 an ounce, which is an upward trend that is likely to continue, especially if tensions escalate between Ukraine and Russia.
5- Escalation of inflationary pressures
Ongoing tensions between Russia and Ukraine are likely to exacerbate already high global inflationary pressures, especially if the rise in energy and agricultural commodity prices continues due to war fears.
In this regard, the Director of the International Monetary Fund warned earlier about the possibility of a rise in the global inflation rate due to tensions between Russia and Ukraine.
Russian pressure:
Political tensions between Russia and Ukraine have had noticeable repercussions on the Russian economy, and this is evident as follows:
1- Weak Russian ruble
The exchange rate of the Russian currency declined by about 5% during the month of January 2022, and reached its lowest level at 79.3 rubles against the dollar on January 27, before recovering some of its losses later.
JPMorgan pulled back its recommendation for clients to invest more in the Russian ruble and its earlier forecast of gains, as uncertainty increased over the escalation of tensions over Ukraine.
In the same direction, the investment bank "Renaissance Capital" warned of the possibility of a 20% deterioration in the ruble's exchange rate against the dollar, in the event of a military escalation.
2- High inflation
In light of the weakness of the ruble and the wave of global inflation, the inflation rate in Russia rose to its highest level in six years, reaching 8.73% in January 2022, prompting the Russian Central Bank, during its last meeting, to raise the interest rate by 100 basis points, for the third time in less year, to reach 9.5%.
3- Capital outflows
Money managers are expected to withdraw liquidity from emerging market bond funds, including Russia;
As a result of monetary tightening by the Federal Reserve, in addition to the threat of conflict between Russia and Ukraine.
collective loss:
The issue of the Ukrainian crisis is shrouded in a great deal of ambiguity, and global estimates vary about Moscow's true intentions regarding Ukraine, and this is evident as follows:
1- Escalation scenario
The assessments of some Western countries, led by the United States of America, go that Russia has mobilized enough forces near the Ukrainian border in preparation for its invasion, and accordingly, Washington turned to arming the Ukrainian army with military equipment;
To confront the potential Russian threat, it also threatened to impose economic sanctions on Russia in the event of a war against Ukraine, which include the following:
A- Cutting off Russia’s access to the “SWIFT” system for remittances:
There is a Western proposal that supports Russia’s exit from the global “Swift” system, if it invades Ukrainian lands, which may have a negative impact on the Russian economy, especially in light of the settlement of most commercial transactions and Russian oil and gas sales through this system. However, this proposal is not on the table. Seriously, in light of the opposition of some European powers to it, because of its repercussions on the European trading system, and European banks, which are the most closely linked at the global level with Russian banks.
B - Threatening to cut off the gas
In the event that Europe imposes sanctions on Russia, Moscow may respond by cutting off natural gas exports to the European Union, which provides Europe with about a quarter of its total energy needs. ;
Because this step will have significant financial costs on the Russian budget itself, and on export earnings.
C- Ending the Nord Stream 2 project.
The US administration has repeatedly threatened that Russia's military action against Ukraine would halt the operation of the Nord Stream 2 pipeline linking Germany and Russia across the Baltic Sea, hampering Russia's hopes of reducing its dependence on Ukraine to transport gas supplies to Europe.
D- Denying Russia's access to the debt markets
There is a proposal that Western countries put pressure on the Russian economy, by banning Moscow's access to debt and stock markets, which will lead to a further decline in the Russian ruble, and a rise in the cost of domestic borrowing, which ultimately threatens the country's financial and monetary stability.
2- Calm down fraught with caution
Some other estimates suggest that the escalation of tensions between the two sides will not extend to Russian military action against Ukraine.
Perhaps its signs appeared when the Russian Ministry of Defense announced, finally, the withdrawal of part of the Russian forces deployed near the border with Ukraine, and the emphasis on the continuation of gas supplies to Europe through Ukrainian territory.
In the scenario of invasion or total war, it will entail heavy political and military costs for all parties, including Russia.
• The fragility of the situation in Eastern Europe and the persistence of tensions between Russia and Ukraine remain a factor in continuing pressures on commodity markets worldwide.
• The scenario of invasion or total war, which will entail heavy political and military costs for all parties, including Russia, as it would exhaust the Russian economy and expose it to long-term economic sanctions by Western countries.
Follow our latest local and sports news and the latest political and economic developments via Google news