Leader

NST Leader: The price of war

Geography may fool us, but economics doesn't. Russia and Ukraine may be thousands of kilometres away for many, but what happens there doesn't always stay there.

Economics explains why and how bad it can hurt the rest of the world. Malaysia will not be spared. In one way of seeing, economics is a study of supply and demand. And Russia and Ukraine are big suppliers of things we have insatiable demand for. Start with crude oil.

Gravitas, an Indian news channel, says 12 per cent of the world's crude oil comes from Russia. Translated into the language of exports, that is equivalent to five million barrels per day, an amount several times more than what many countries are able to produce in a day.

United States President Joe Biden on Tuesday stopped it heading to his country by imposing a ban on Russian oil and gas. Oil shock is back again.

True, the US has the potential to produce huge supplies of shale oil. But shale oil is not on tap to be turned on and off as the president pleases. It takes time. In the meanwhile, people around the globe will have to pay a heavy price to move their vehicles from point A to B. How high?

The market gave us an indication on Tuesday when Brent, the global benchmark crude, hit the roof at US$132. Not in 40 years, says a media report quoting analysts. Many say US$150 isn't too far away. According to Bloomberg, Opec sees this as movements in the futures market as there is no physical shortage of oil.

Are we moving from the low-for-long scenario to a high-for-sometime one? Expect a domino effect. From tea to tamarind, we may end up paying more and more with less and less. Inflation will eat into the dollar, pound, euro, rouble, ringgit, rupiah and what have you like no roach can.

For people nearer home in Europe, it will be dark days in more ways than one. Russia supplies 40 per cent of Europe's gas and this may soon be turned off. Russia's Deputy Prime Minister Alexander Novak took to the air to signal such a warning after a series of sanctions began hurting Moscow.

Keeping the light and heat on would be a huge burden for many in Europe. The Financial Times is right. The conflict in Europe is a disaster for global food supply. According to the newspaper, commodity prices, more generally, increased at close to the fastest pace for over half a century last week. More specifically, wheat prices hit a record high on Friday — US$13.50 per bushel, a 50 per cent rise since the war started on Feb 24 — as exports were halted. Russia and Ukraine — Europe's bread basket — produce 30 per cent of the world's traded wheat, according to the British newspaper.

War isn't just pushing the price of wheat up, but also inflating those of other grains because of demand shifts. Corn is reported to be up by 10 per cent since the war began. If the war continues, not only the grains stuck in ports would not get to their destination, but new ones would not get to grow. No harvest but thorns. Bread may not be available even if you have the money to buy it.

War is in nobody's interest. Geography tells us the war is in Europe. But economics tells us it is very near home.

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