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06 May 2022

Russia-Ukraine War: Effects On Global Oil Prices

Russia invaded Ukraine on February 24th, 2022, defining a change in the global dynamics. The issue about the war is that it doesn’t only affect both of the involved countries. Instead, it has taken the world by storm due to its global repercussions and side effects. As stated by the World Bank, one of the significant consequences is the rising oil prices and potentially the most critical commodity shock ever to happen since the 1970s.

 

Economic experts report that the invasion and political instability will cause inflation in the international prices of several commodities- be it wheat, natural gas, cotton, or the foundation of all: crude oil.

 

It must be noted that wars and modern invasions- especially by a leading economic player like Russia, don’t simply mean humanitarian effects. While Ukraine’s- and Russia’s- societies are at massive threat, falling victims to unpeaceful situations, it also means households across the globe suffer a great extent of issues in the form of the increased cost of living with stagnant disposable incomes.

 

How High Can The Prices Go?

 

As an estimate, energy costs can increase by more than 50%, skyrocketing residential and commercial power costs. Not only that, but an expensive wheat supply means the yearly food costs increase by around £270 (roughly $340).

 

With the potential limitation of supermarkets selling cooking oil, international consumers, primarily European residents, need to prepare for critical conditions beforehand. Perhaps the biggest victim of the rising prices is crude oil. Why? Let’s find out!

 

What’s Happening In The Wheat Market?

 

While it’s general knowledge that Russia caters to a vital portion of global oil demand, it must be highlighted that the country is also responsible for fulfilling extensive wheat requirements. In fact, Ukraine and Russia combined are in charge of almost 29% of the international wheat exports. With both the leading players at war against each other, wheat prices witnessed the largest surge within the last six decades!

 

Why Are The Oil Prices On A Surge?

 

Ever since Vladimir Putin- Russia’s current President- declared invasion of Ukraine, the Soviet Union constituent, oil prices keep hitting the ceiling. For starters, Russia is the third-largest player of oil suppliers, responsible for 11% of the global supply.

 

With several disruptions and unamiable foreign relationships with other nations, Russia is restricting its oil supply. Additionally, hearing the news of the Russia-Ukraine war, while a few countries stopped buying from Russia, some began hoarding the oil due to panic-buying. Both situations clashed, pushing barrel prices to reach $140 in March 2022- the highest in the last 14 years.

 

Although the oil prices have stepped down the costly ladders, the reduction is insignificant and not enough to cause substantial reductions in the overall living costs.

 

What Else Is Increasing?

 

If you thought the inflation was limited to cooking oil, crude oil, natural gas, and wheat, you thought wrong. Even though the price tags for chicken, tea, rice, and soybean fell, costs of other raw materials like minerals, fertilisers, and metals are forecasted to increase.

 

One critical reason is the required environmental conditions for growing wheat. Climate and soil situations matter a lot, urging nations to use more fertiliser to proceed with wheat production in areas like North America.

 

In simple words, Russia’s military operation in Ukraine is nothing but a catastrophe for international food and crude oil markets, just waiting to unfold if the war doesn’t stop.

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