After Russia's invasion of Ukraine, the prices of various things rose, and our lives in Japan were greatly affected.
"The world has changed fundamentally since the invasion," warned some experts, "with increasing conflicts and increasing costs of trading goods."
We've compiled data on the impact this year has had on the global economy, the risks that follow, and whether the Russian economy will weaken.
Electricity price hike Impact on life
Seven of Japan's 10 major electric power companies, including Chugoku Electric Power and Shikoku Electric Power, have applied to the government to raise electricity rates from April this year.
Japan depends on foreign countries for LNG (liquefied natural gas), which is the fuel for thermal power generation.
The price of LNG soared temporarily due to the military invasion by Russia and the suspension of natural gas supply to Europe.
Its influence continues today.
Natural gas prices soar in Europe
The military invasion caused world energy prices to rise significantly, increasing inflationary pressures.
Europe, which was supplied by pipelines from Russia, was greatly affected by natural gas.
The invasion has fueled supply concerns, with futures prices dubbed the 'Dutch TTF', a benchmark for trading natural gas in European markets, hitting a record high in March 2022.
Also in July, the Russian government-owned gas company Gazprom suspended the supply of natural gas from a major pipeline to Germany.
Futures prices hit new all-time highs in August as supply concerns skyrocketed.
European countries are accelerating the shift from relying on Russia for natural gas procurement to LNG from other countries.
This influence spread to Japan.
Crude oil temporarily hits 13-year, 8-month high
Crude oil prices, which are the basis of various energy prices, also soared at one point.
The WTI futures price, which serves as an index for international crude oil trading, was in the $75 per barrel range at the end of 2021.
On February 24, 2022, when Russia launched a military invasion, the oil price exceeded $100 per barrel.
Futures prices continued to rise due to fears that supply would be further disrupted by the severe economic sanctions against Russia, and in early March, the price exceeded 130 dollars per barrel, the highest level in 13 years and 8 months. rice field.
After that, crude oil futures prices will continue to decline from mid-June onwards.
The rapid rate hikes in Europe and the United States and the severe restrictions imposed by China under the "Zero Corona" policy led to a slowdown in the global economy and heightened concerns about a drop in demand for crude oil. is a factor.
Futures prices had fallen to around $70 a barrel in early December, lower than pre-invasion levels.
caused a “food shock”
Russia and Ukraine are the world's leading grain exporters.
The military invasion caused a 'food shock' that spurred a range of food price hikes.
According to FAO = United Nations Food and Agriculture Organization, Russia will be the world's number one exporter of wheat in 2021.
In addition, Ukraine is also called "Europe's breadbasket", and in 2021, the export volume of corn will be the third largest in the world, and the world's fifth largest wheat.
Wheat prices continued to rise due to concerns about tight supply and demand due to poor harvests due to high temperatures and dryness in the summer of 2021 in the main production areas of the United States and Canada.
Military invasion by Russia happened there.
Worries about slowing wheat exports fueled price increases.
In early March 2022, the futures price of wheat, which serves as an index on the Chicago Board of Trade, hit a new high for the first time in about 14 years since February 2008.
Corn futures prices temporarily rose to the highest level in about 9 years and 8 months in late April due to concerns about supply shortages.
Temporary blockade of export base ports
After the military invasion, the port of Odesa in the south, which is the export base of Ukraine's grain, was blocked by the Russian army and exports were temporarily delayed. An agreement was reached and exports will begin in August 2022.
Since then, the prices of grains such as wheat and corn have been on a downward trend.
The food price index, which FAO calculates the movement of world food prices from international transaction prices, has fallen by about 17% as of January 2023 compared to March 2022, when it recorded a record high, but still It remains higher than it was before the invasion.
Also, uncertainties remain.
An agreement brokered by Turkey and the United Nations to resume Ukrainian and Russian agricultural exports expires again in mid-March, and the focus is on whether it will be extended.
Also, Ukrainian wheat and corn production and exports are expected to both decline as a result of the invasion.
According to the U.S. Department of Agriculture, as of February, Ukraine's export volume forecast for 2022-2023 is 13.5 million tons for wheat, 28% less than in the previous period, and 22.5 million tons for corn, 16% less than in the previous period. tons.
Furthermore, it is pointed out that the planted area of agricultural products scheduled to be produced from 2023 to 2024 will also decrease.
Fertilizer prices continue to rise
The price of chemical fertilizers, which are indispensable for agricultural production, remains high.
Russia and Belarus are major producers of potassium chloride, a raw material for chemical fertilizers, but procurement remains unstable due to military invasion.
In Africa, there are countries that are highly dependent on grain imports such as wheat from Russia and Ukraine, and there is a risk of serious food shortages in the future.
What will happen to the world economy this year?
What impact did Russia's invasion of Ukraine have on global economic growth?
Based on the forecasts of the IMF = International Monetary Fund.
The IMF predicted 4.4% global economic growth in 2022 in January, before the military invasion began.
The forecast has since been revised down twice, with the January 2023 estimate of 3.4% growth in 2022, down one percentage point from the pre-invasion forecast.
The IMF cites factors such as Russia's military aggression leading to soaring energy and food prices, and central banks in Europe and the United States raising interest rates to curb inflation.
On the other hand, the forecast for January 2023 is that the growth rate will slow down from last year to 2.9%, but it has been revised upward by 0.2 points from the previous forecast for October 2022.
Rate hikes by central banks and the invasion of Ukraine will continue to weigh on economic activity, but the trend of slowing inflation and the end of China's "zero coronavirus" policy will be positive factors.
Rough Seas of Sanctions: Will Russia Weaken?
The United States, Europe, and Japan have imposed severe economic sanctions on Russia one after another.
There are a wide range of measures, including a ban on the settlement of financial transactions, a ban on the export of high-tech products such as semiconductors, and a ban on the import of Russian crude oil.
Let's take a closer look.
Lockout from settlement of financial transactions is done by locking out major Russian financial institutions from the international settlement network `` SWIFT '', which is also used for remittances such as trade.
The aim is to prevent Russian companies from doing business with companies from other countries.
In addition, the United States and the EU (European Union) have strengthened export bans and export restrictions on high-tech products such as semiconductors, and the United Kingdom has banned exports of communication equipment and aviation-related parts. Pressure increased to end the invasion early.
It also imposes sanctions on oil, which accounts for much of Russia's revenue.
The United States announced an import ban early in March 2022.
The EU = European Union has also banned the import of Russian crude oil from December 2022.
However, Russia's crude oil has resulted in increased imports by China and India, which are not participating in the sanctions, and the view that the sanctions are not effective has spread.
Furthermore, the price of crude oil and natural gas temporarily soared due to the shortage of supply.
It has become a form that brings significant income to the Russian energy industry.
“Stubborn” Currency Ruble
The move to strengthen sanctions and the view that sanctions are not working on the contrary can be clearly understood by looking at the price movements of the currency ruble.
Before the military invasion began, the Russian ruble traded at around 80 rubles to the dollar.
After the military invasion, when the West announced economic sanctions against Russia, the currency plummeted, hitting a record low of around 150 rubles to the dollar in early March 2022.
In an attempt to lead to forced ruble purchases, the Russian government obliged export companies in Russia to convert a certain percentage of the foreign currency they acquired into rubles, and demanded that they pay for natural gas in rubles. .
At the end of February 2022, the Central Bank of Russia, in an attempt to protect the currency after the ruble plummeted, raised the policy rate substantially from 9.5% to 20%, almost doubling.
As a result of these measures, the ruble rose in value, returning to pre-invasion levels in April 2022.
Will it be a trump card?
Setting Crude Oil Price Caps
Under these circumstances, the measure to set a ceiling price for crude oil transactions, which was launched in December 2022, seems to have been surprisingly effective.
The EU, the G7 = seven major countries, and Australia have launched new sanctions that set a price cap of $60 per barrel for international trade in Russian crude oil.
The aim is to reduce Russia's income by lowering the transaction price of only Russian crude oil while distributing it in the market.
Fiscal deficit widens
Revenues fell 35% from the same month last year, and the fiscal deficit widened, according to the Russian Finance Ministry's fiscal balance released on February 6.
This is because oil and gas revenues, which account for about 40% of fiscal revenue, fell by 46%.
The Russian Ministry of Finance explained that lower crude oil prices and lower natural gas exports had an impact.
The currency ruble is on a downward trend again in 2023.
As of February 22, 1 dollar = 75 rubles, the lowest level since late April 2022.
It has been pointed out that if foreign currency income from energy decreases, Russia's fiscal deficit will expand, further leading to the ruble's depreciation.
The never-ending Ukrainian war.
Energy prices such as crude oil have regained stability compared to immediately after the invasion, but there are still causes for concern such as unstable supply of grains such as wheat and persistently high fertilizer prices.
We are entering an uncertain era in which we do not know when and how the economy will be hit if the fighting intensifies.