WAR! WHAT IS IT GOOD FOR?

By Aashni Rebello

Inflation stands at 7.01%! Global supply chains are being disrupted! There is a shortage of grains, fuel and fertilizers all over the world. 

A war is raging between two of the most globally integrated countries in the world. A crisis like no other, the Russia-Ukraine conflict has triggered an economic meltdown, one that has majorly affected food security, fuel costs and import prices. There seems to be no hope of recovery. But, somewhere along the way, this war presents a new beginning for the world’s economies and even has the potential to bring about a change for the better. 

Russia and Ukraine together produce 12% of the world’s food, controlling a whopping 65% of sunflower oil and 29% of the world’s wheat exports. In addition, the countries export diverse commodities ranging from iron to steel to nickel to fertilizers. The war has created a massive shortage of such commodities, putting an upward pressure on their prices. This makes it virtually impossible for other countries, particularly the poor and underdeveloped ones, to rely on scarce and expensive imports from the war ravaged nations. 

These countries are two of the largest commodity exporting nations in the world. The war has brought into perspective our excessive dependence on other countries and the inherent risk that comes with globalization.  

What would be a better way to reduce your dependence on imports than domestically producing the commodities within your country itself? This would save foreign exchange, utilize the home country’s existing talent base and create new employment opportunities in various sectors. The war would thus pave the way for domestic production and make countries self-reliant to effectively deal with global supply chain bottlenecks and disruptions. In the Indian context, a major push would be given to ‘Make in India’ schemes, as countries try to reduce their dependence on imports. 

As per a survey conducted by Dun & Bradstreet, the conflict presents an excellent opportunity for India to increase its export potential. India is among the top three wheat producers in the world. 2021 was a record year for India in terms of wheat production. Yet, it has exported significantly less wheat in the past. This is because of the high prices of production (making it less competitive in the global scenario) and well- established exporters like Russia and Ukraine. Now, with the uptick in global wheat prices, India’s exporters can bring their prices closer to the international level and boost their exports of wheat. Similarly, some of the poorest countries in Africa have huge untapped potential of oil and natural gas. For example, Senegal has approximately 40 trillion cubic metres in energy reserves. With the European Union, cutting down on its oil imports from Russia, Tanzania, Mozambique and other nations can provide gas supply to the EU and increase their export revenue. 

The war could lead to the reorientation of export markets, helping poorer nations to step up their exports and get fair prices for the same.

Leading wheat PRODUCERS

https://www.dw.com/en/ukraine-war-increases-global-food-insecurity/a-61206423

Arguably, the biggest disruption caused by the war can be seen in the crude oil market. With Russia exporting almost 8.2 million barrels per day, the crisis has led to a sharp increase in prices. As countries scramble to find alternative sources of power, the war seems to be speeding up the transition to green and clean energy sources. Germany, for example, has made a commitment to get 80% of its electricity from renewables (as compared to the previous 65%) and is actively accelerating the ‘Energiewende’, an ongoing energy transition to low carbon supplies. 

Thus, the war could hasten the much needed decarbonisation of our societies. 

The soaring prices of oil

https://www.indiatoday.in/diu/story/russia-ukraine-war-affect-india-platter-1931079-2022-03-29

It is the hard truth that when countries of this calibre go to war, the world is presented with a devastating humanitarian and economic crisis, from which recovery seems impossible. But, there is light at the end of this long drawn tunnel because the war will change the way, the world works by fast tracking the energy transition and increasing domestic production. Perhaps, a crisis is what we need in order to strengthen and revitalize our economies.

References

Asia winners and losers in Russia-Ukraine war: commodities, weapons. (2022, April 7). CNBC. Retrieved August 12, 2022, from https://www.cnbc.com/2022/04/08/asia-winners-and-losers-in-russia-ukraine-war-commodities-weapons.html

Elahi, S. M. (2022, March 3). The economic costs and benefits of Ukraine war. The Financial Express. Retrieved August 12, 2022, from https://thefinancialexpress.com.bd/views/views/the-economic-costs-and-benefits-of-ukraine-war-1646320270

How does the war in Ukraine affect oil prices? (2022, March 4). The World Economic Forum. Retrieved August 12, 2022, from https://www.weforum.org/agenda/2022/03/how-does-the-war-in-ukraine-affect-oil-prices/

Mukhopadhyay, N. (2022, May 30). Russia-Ukraine crisis: Can Indian exporters fill the gap in the global commodities market? The Economic Times. Retrieved August 12, 2022, from https://economictimes.indiatimes.com/small-biz/trade/exports/insights/russia-ukraine-crisis-can-indian-exporters-fill-the-gap-in-the-global-commodities-market/articleshow/91880818.cms?from=mdr

Russia-Ukraine war transforms into boon for China: Report. (2022, May 20). ANI News. Retrieved August 12, 2022, from https://www.aninews.in/news/world/asia/russia-ukraine-war-transforms-into-boon-for-china-report20220520230651/

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