In the midst of another period of uncertainty

A day that the world would never forget passed off, largely sidelined by the raging war between Russia and Ukraine. The day was no other than Friday, March 11, 2020, which marked the second anniversary of Covid-19 since its outbreak was labelled as a pandemic by the World Health Organization.

If the coronavirus pandemic caused widespread grief and sense of loss and continued hardships for all populations, the world is now grappling with another period of uncertainty as a result of the new geopolitical threat which is adding fuel to the financial strain that we are in the midst of.

The war has dramatically changed all our expectations of recovery. Apart from taking a huge toll on human lives, it has driven energy and food prices higher and created macro uncertainty around the world.

It came at a time when the world's supply chains, which were already in disarray because of the pandemic, had just signalled that the bottlenecks were easing. But now those plans had been thrown into disarray by new supply challenges due to the conflict and sanctions on Russia.

The war has rattled the global economy and markets. Due to disruptions in the availability of commodities from Ukraine and Russia, as well as renewed supply chain breakdowns, the world is now facing big inflation in costs reminiscent of the oil shock of the past.

Even though it is impossible to speculate about the outcome or duration of the war, based on what has been announced and is known so far, the biggest tremors will be on energy and commodity prices as have been since the beginning of the war.

Crude oil and thermal coal prices were already up by 40 per cent and the prices of base metals such as nickel and aluminium were up even more sharply in some cases. Agricultural commodities had also been affected, with the price of wheat in global markets rising by 40 per cent since the start of February.

The sanctions against Russia have immediately put further strains on them, prompting skyrocketing energy prices and even fears of famine. Russia and Ukraine together account for nearly one-third of all global wheat exports, and 20 per cent of corn sales.

Russia is the world’s second largest producer of platinum, which is used in jewellery, is a key ingredient in electronics, and is essential to catalytic convertors found in automobiles. The car industry will certainly feel the price pressures from the shortage.

The war has also had a devastating impact on global trade movements, with hundreds of tankers and bulk carriers stranded at ports as a result of sanctions imposed on Russian-connected ships. Container lines had already ceased calls in Ukraine for safety reasons, and are now no longer calling at Russian ports.

Shipping majors like FedEx Express announced last week they were raising their surcharge for many international parcel and freight shipments due to the disruptions.

Higher energy and commodity prices triggered by the war and sanctions will add to the already high inflationary pressures faced by many economies since 2021. The United States is already confronting the highest ever inflation in 40 years at 7.5 per cent in January, and is expected to start raising interest rates next month.

Already struggling with rising living costs, the situation in Europe is also not different. They are facing an even deeper hit to their livelihoods as the conflict has pushed fuel and food prices higher and threaten to undermine a fragile economic recovery.

And as usual, the burden falls heaviest on the most vulnerable in the world. The poor spend a higher share of incomes on food and heating and, if the war continues, will pose a clear and growing threat to food security that will end up in another economic catastrophe!