The Russia-Ukraine crisis could prove “disastrous” for Asian economies, with surging prices of fuel and commodities likely to add to coronavirus-induced economic woes, economists have warned.
Although Western countries stopped short of enacting sanctions on direct supplies of goods from Russia as they levied “modest first-tranche” restrictions on Russian elites and financial systems, the crisis has sent jitters through markets and triggered price surges in key Russian exports such as oil, gas and metal raw materials that are expected to exacerbate rising inflation and production crunches in Asia.
Still recovering from pandemic-driven supply chain disruptions that have sent the cost of supplies rocketing over the past two years, major Asian economies that import from Russia – such as Japan and South Korea – would face not only further price increases but potentially shortages too if Russia were to counter the sanctions by cutting supplies.
“The immediate consequence of a Russian invasion of Ukraine would be economic volatility that would upset the growth outlook for Asia,” the Economist Intelligence Unit’s regional director Tom Rafferty said.
“While Asian countries would not be directly involved in any conflict, the geopolitical and economic implications for the region would still be significant.”
Analysts pointed out that Asia had played an increasingly important role in Russian exports in recent years.
While about half of Russia’s exports went to Europe in 2020, more than 40 per cent went to Asian countries – particularly China, Kazakhstan, South Korea, and Japan – analyst Chris Devonshire-Ellis, of Dezan Shira & Associates, said in a note last year.
After Putin’s recognition of two independent areas in Ukraine and Germany’s subsequent blocking of the Russia-Europe natural gas pipeline Nord Stream 2 this week, oil prices soared to a seven-year high to reach US$99 a barrel on Tuesday. Gas prices also rose.
Japanese and South Korean manufacturers should brace for rising input costs as both nations were heavily reliant on Russian crude oil and gas for production, warned economist Pushpin Singh, of the Centre for Economics and Business Research.
He said this would subdue economic activity in these two countries further in the medium term. Both were already suffering from slowing consumer consumption.
“For Japan and Korea – two export-oriented, manufacturing-heavy economies – such a spike in energy and commodity prices aggravates already long-standing issues that have plagued the two economies for much of 2021 and into 2022,” Singh said.