A Russian invasion of Ukraine has been a key issue in global politics for months now, as over 100,000 Russian troops are positioned around Ukraine’s borders with Russia.
Western leaders continue to meet with their Russian and Ukrainian counterparts in an attempt to create dialogue and find a diplomatic end to the issue. The US has continually stated their intelligence agencies point to an imminent Russian invasion.
The effects of months of talks around sanctions, de-escalation and invasion have had significant effects on the global economy. The effects on Australia can be seen below.
Key points:
Price of Oil:
Russia accounts for about 8 per cent of the global oil supply, oil prices sparked by war would hit households at the petrol bowser. The national average unleaded petrol price last week rose by 5 cents to a record 176.9 cents a litre, with the price expected to rise to the $2/ litre mark should a war break out.
Price of Gas:
Russia is a major exporter of gas, especially to the European Union, a surge in the oil price would result in a rise in coal and liquified natural gas (LNG) prices as buyers searched for energy substitutes. As a major exporter of both, Australia would benefit from that rise.
The Australian Dollar:
If Russia invades Ukraine this would see large scale transfer of capital into safe havens such as the US would also drive down the Aussie dollar. That would be good for resource companies that repatriate profits, but would also add upward pressure to tradable inflation.
Related Business Resources: Spotify boss continues defence of Joe Rogan
Related National News: Is $20m for the copyright of the Aboriginal flag a fair deal?
From AFR 14.2.22
A Russian invasion of Ukraine could push oil prices above $US120 a barrel and lead to a global supply shock that drives inflation higher and hits still-fragile consumer confidence following the omicron COVID-19 wave.
With more than 130,000 Russian troops staged on the Ukraine border, US officials at the weekend warned an invasion could come at any time.
Higher oil prices sparked by war would hit households at the petrol bowser and further drive up headline inflation, said Andrew Ticehurst, economist and rates strategist at Nomura Australia.
Oil prices surged to seven-year highs on Monday and come after the national average unleaded petrol price last week rose by 5 cents to a record 176.9 cents a litre, according to the Australian Institute of Petroleum.
“It could also act as a tax on growth for consumers, having a negative impact on confidence and consumption,” Mr Ticehurst said. That could force a rethink of the Reserve Bank of Australia’s outlook for interest rate hikes.
But at the same time, a surge in the oil price would result in a rise in coal and liquified natural gas (LNG) prices as buyers searched for energy substitutes. As a major exporter of both, Australia would benefit from that rise.
“There may be winners and losers, but at an aggregate level [an invasion] may not have much of an impact on the economy,” Mr Ticehurst said.
Australian commodity exporters would be among the winners. In addition to energy substitutes, producers of safe haven assets such as gold are usually beneficiaries of geopolitical uncertainty.
A rush of capital into safe havens such as the US would also drive down the Aussie dollar. That would be good for resource companies that repatriate profits, but would also add upward pressure to tradable inflation.
Analysts said the uncertainty of the situation on the Russian border made predicting flow-through effects difficult, but there were certainly plausible scenarios where military action led to a global energy supply shock.
For many, the biggest uncertainty is what, if any, national-level sanctions are imposed on Russia and how the Kremlin would respond.
“You want to make sure sanctions don’t hurt you more than they do Russia,” Commonwealth Bank commodities analyst Vivek Dhar said, noting Russia would likely retaliate against any national-level sanctions.
Russia pipes about 250,000 barrels of oil a day, or 0.25 per cent of global supply, through Ukraine. More broadly, Russia accounts for about 8 per cent of global supply, after discounting production for domestic use, making it the world’s third-largest producer.
The International Energy Agency on Friday labelled the likelihood of national sanctions as “remote”. But in its Oil Market Report, the IEA also said global oil balances were much tighter than previously thought.
“Chronic underperformance by OPEC+ [the global cartel of oil producing nations] in meeting its output targets and rising geopolitical tensions have propelled oil prices higher,” the IEA said.
Mr Dhar said the global oil stockpiles and limited OPEC+ spare capacity suggested that oil markets were more vulnerable to supply shocks, and the “primary supply shock on the market’s mind” was Ukraine.
From a monetary policy perspective, Mr Ticehurst said the RBA would likely look through short-term price impacts, though BetaShares chief economist David Bassanese warned prolonged higher prices would be hard to ignore.
“If oil prices went over $100 a barrel and stayed there it would be a further shock to consumer spending,” he said. “If it’s a negative supply shock al la the 1970s it’s going to be very hard for central banks to ignore.
“Depending on how long that lasts it could tip the global economy into recession.
