Md. Zillur Rahaman :
Russia’s aggression in Ukraine is a huge blow to the world economy, which has yet to fully recover from the effects of the epidemic. The conflict is already the most serious crisis and aggression for Europe since 1945. Russian forces are carrying out air strikes, occupying military bases and advancing on Kiev as civilians flee. Analysts say the capital, Kiev, could collapse at any moment and its air defenses run out. After the invasion of Ukraine, the world economy has already begun to tremble by raising fuel prices. For the first time since 2014, oil prices have exceeded US$100 per barrel, while European natural gas has risen by 62 percent. JP Morgan, a US multinational investment bank, predicts that the price of fuel oil will rise to US$125 per barrel in the second half of this year and to US$150 in 2023. Earlier, in 2008, the price of fuel oil rose to US$147 per barrel, the highest ever.
As Ukraine struggles to survive, Western governments are also taking sanctions to punish Russia. They want to increase the impact of the conflict on their own economy. US President Joe Biden and his European allies have already announced new sanctions on Russian banks, the dollar trade and the Swift network. The Covid-19 epidemic has already created high inflation and worrisome financial markets in the world economy, and the current war in Ukraine will only make matters worse. Thus, the economic growth of many countries is under threat. Households that spend a large portion of their income on fuel and food will have the opportunity to spend less cash on other products and services. The submerged and risky market will add another tug of war, hurting wealth and confidence and making it harder for firms to use the funds to invest in future.
Market analysts say Russia could cut back on oil and natural gas exports to the USA in retaliation for sanctions imposed by the USA and its Western allies. Russia is the world’s second-largest supplier of 10 percent of the world’s oil. However, Saudi Arabia is the largest exporter of oil. Russia is not only the world’s largest supplier of oil but also the world’s largest supplier of natural gas. Experts fear that the country could cut off gas supplies to Europe at any time. This will have a big impact on the world economy. Europe is dependent on Russia for about 35 percent of its natural gas. In 2020, Russia’s gas exports to Europe declined and then the import of LNG from the spot market increased. As a result, gas prices rise abnormally. Russia-Ukraine war could push gas prices higher. The USA recently said it was considering importing LNG from other parts of the world, instead of Russia. In this case, the countries of the Middle East and North Africa are being given priority. This will further increase the price of the product in the spot market. As a result, small LNG importing countries like Bangladesh will suffer.
The central banks in the affected countries face a two-pronged challenge – controlling prices and keeping their economies growing. The US Federal Reserve and the European Central Bank are already preparing to tighten their monetary policy. They are being forced to reconsider the crisis in Russia. How big the conflict will be in the world economy will depend on its longevity and scope, the severity of Western sanctions and the possibility of Russian retaliation. From the flight of Ukrainian refugees to the wave of Russian cyber attacks, there is the possibility of other twists and turns.
International Bloomberg Economics observes three situations where war can affect rises commodity prices, inflation and monetary policy. First, the rapid end of the war prevents further upward trends in commodity markets, which puts the US and European economic recovery on the right track. Therefore, the plans of the central bank have to be changed and they cannot be canceled. Second, a protracted conflict, a harsh Western response, and a blockade on Russia’s oil and gas exports would push a major fuel and create a greater risk to world markets. Third, in the worst case scenario, Europe’s gas supply will be cut off, a recession will begin, while the USA will see a significantly tighter financial situation, a major blow to growth, and a significantly more stagnant Fed.
However, it is not clear what impact this could have on Bangladesh. But what will Bangladesh do if this war is prolonged and the scope of sanctions on Russia increases, Bangladesh has to plan ahead. It can hamper the RMG export to Russia and the projects implemented in Bangladesh by Russian government. The World Bank and the International Monetary Fund, however, have warned that Russia’s aggression in Ukraine could have a devastating effect on the global economy. They also warned that Russia’s aggression would “severely hamper” the pace of global economic recovery.
(Zillur Rahaman is a banker).
