Russia and Ukraine are major producers and suppliers of commodities such as oil, natural gas, wheat, sunflower oil, coal, iron, steel, titanium, palladium, gold and copper. The prices of these items are likely to remain high even after the war is over.
Russian President Vladimir Putin
Image Credit source: AFP
corona pandemic (Corona Pandemic) Ukraine-Russia war to the world already facing conflict after the devastation caused by (Ukraine-Russia War) Has given a second blow. Vladimir Putin (Vladimir Putin) The new world order that the US has shaped is more uncertain than in the darkest days of the Cold War. It doesn’t matter how Putin’s Ukrainian misadventure ends. The COVID-19 pandemic has given a major blow to the people across the world. After that the Russian invasion of Ukraine has created new problems in front of the world.
The warring Putin has sent the prices of many everyday items to the highest level. In view of the uncertain future, many countries are emphasizing on increasing their stocks. Russia and Ukraine are major producers and suppliers of commodities such as oil, natural gas, wheat, sunflower oil, coal, iron, steel, titanium, palladium, gold and copper. The prices of these items are likely to remain high even after the war is over. Ukraine is busy fighting for its existence against Russia and Moscow has been imposed financial sanctions by Western countries. Under these circumstances, the global supply chain has again been disrupted.
Europe’s dependence on Russian oil and gas
Russia meets 40 percent of Europe’s gas needs. Russian gas is supplied via the Nord Stream 1 pipeline via Ukraine. Most of the EU countries depend on Russian gas. Of these, the Czech Republic and Latvia 100 per cent, Hungary (95), Slovakia (85), Bulgaria (76), Finland (67), Germany (65) and Poland depend on Russia for 55 per cent of their needs. Although Western sanctions have specifically exempted Russian bank transactions related to gas, Russia can decide to close the Nord Stream-1 gas pipeline if it so desires. We must not forget that Germany has already announced a halt to the certification process of the Nord Stream 2 pipeline project through the Baltic Sea.
Germany’s situation is the worst because Russia meets 65 percent of its gas needs to heat homes and run factories. It has no other source of electricity as it shut down its nuclear reactors after the 2011 Fukushima accident and is gradually reducing its dependence on coal. Germany does not have a terminal to regasify the LNG that the US can deliver via tankers.
Natural gas has been the lifeline for the whole world including Europe. It was also the cheapest source of energy for a decade before the current Ukraine crisis broke out. On Monday, the price of natural gas was at a record high of 345 euros per megawatt-hour. During the 10 years before the rise in global demand, its price was around 15-25 euros per MW. Although the price has stabilized, the Russian attack on Ukraine has pushed up natural gas prices. Apart from natural gas, oil prices are also increasing. Russia’s Deputy Prime Minister Alexander Novak has warned that the price of oil could reach $300 if the West continues to lift its sanctions. Moscow has also warned that it could sabotage the Iran nuclear deal. In such a situation, Western sanctions can be lifted from Iran and Iran can replace Russia as an oil and gas supplier to Europe.
Rising prices can weaken the intention of western countries
Along with oil and gas, prices of wheat, metals and minerals essential to European industries are skyrocketing. Wheat prices have increased by 30 percent as compared to December. The price of nickel needed for chip making and nanotech industry is 60 percent, palladium required for catalytic converters 70 percent, coal is at a record level of $ 400 a tonne. There is also a rise in the prices of gold and copper. The longer Putin continues the war, the prices will keep rising. This will increase discontent among the people and weaken the Western resolve to take aggressive action against Putin. The increase in oil and gas prices will have an adverse effect. There will be a jump in the prices of consumer goods in petro-importing countries around the world including India.
Putin will also benefit from the increase in the prices of essential commodities, as the futures market is already making random predictions about the prices. This means that the Russian government is benefiting and does not care which direction the war in Ukraine goes. Whatever the situation, Russia will continue to make profits in the near future. Let us inform that Russia’s state-owned gas producer Gazprom made a net profit of $ 23 billion in 2019.
Ukraine war hits COP-26 targets
Putin’s war has dealt a severe blow to the West. In addition to hurting the West economically, it has also hit global net-zero carbon emissions targets. Following the COP-26 summit, the future of coal, oil and gas exporting countries looked bleak, as most countries pledged to achieve net-zero carbon emissions in three decades. This means that in five years with the advent of hybrid cars, petrol and diesel prices were bound to fall, as more producers would be pumping out more oil to make more profit before the new technologies took effect. But that hope is now over.
Countries around the world have become increasingly dependent on locally available resources, especially coal, to reduce their reliance on Russian fossil fuel supplies. Coal was a dirty word during last year’s COP-26 summit. Now dependence on the same coal is increasing for many countries. India has asked its coal producers to substantially increase production. In short, politics over Russian oil and gas will cost the West a heavy price and will have no easy alternative. It is not correct to say that Moscow has nothing to lose. Russia’s second largest oil producer, Lukoil, has already expressed concern over escalating war with Ukraine. Fearing the prospect of facing mere Western sanctions, traders are already withdrawing from Russian crude oil and gas supplies.
It would be right to mention that climate change is not a zero-sum game. It is an issue in which the gain of one party is equal to the loss of the other. If this war thwarts the global effort to curb climate change, Russia will not be able to escape the consequences. Putin has single-handedly changed the world order by attacking Ukraine and challenging the West. If that was his original goal then he could not have planned better than this.
(The views expressed in the article are the personal of the author.)
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