Since the start of the war between Russia and Ukraine, global prices for some grains have skyrocketed, with both countries accounting for a significant percentage of the world supply of some of these commodities, such as wheat.
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From food prices to tourism to arms shipments, Asia-Pacific countries could be badly hit by the Russia-Ukraine war even if they aren’t directly exposed to the conflict, according to a new report by the Economic Intelligence Unit.
Food prices are particularly sensitive to the war as both countries are major commodity producers, the research firm said. Some Asian countries depend on commodities such as fertilizers from Russia, and global shortages are already driving up agricultural and grain prices.
Given the region’s relatively high dependency on energy and soft commodity imports – even if the countries don’t source directly from Russia or Ukraine, the price hike will be a concern, the EIU warned.
“Niche dependencies include dependency on Russia and Ukraine as a source of fertilizers and grains in Southeast and South Asia, which could cause disruption in the agricultural sector,” the company said.
The world’s major powers have imposed far-reaching sanctions on Russia for the unprovoked war against Ukraine. The US has imposed energy sanctions, the UK plans to do so by the end of the year. The European Union is also considering whether to do the same.
For some countries, export advantages result from higher raw material prices and a global search for alternative offers.
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Sanctions were also imposed on the country’s oligarchs, banks, state-owned companies and government bonds.
“Northeast Asia — home to the world’s leading chipmakers — has also been affected to some extent by disruptions in supplies of noble gases used in semiconductor production,” EIU said in its report.
Other areas that could be affected include Russian tourists, who prefer to stay away, and some Asia-Pacific countries that may be cut off from Russian weapons.
Commodity spike winners and losers
Global prices for oil, gas and grain have been skyrocketing since the war began in late February.
Russia and Ukraine contribute a significant percentage of the world supply of some of these commodities.
Wheat futures have pared some gains from the initial surge but are still up 65% year-on-year. Corn futures are up over 40% over the same period.
Some countries will be vulnerable to the price increase, others could benefit.
“There will be export benefits for some countries from higher commodity prices and a global search for alternative supplies,” EIU said.
In addition to food and energy, nickel supplies are also affected, as Russia is the third largest nickel supplier in the world.
Countries benefiting from higher commodity prices:
- Coal exporters: Australia, Indonesia, Mongolia
- Crude oil exporters: Malaysia, Brunei
- LNG: Australia, Malaysia, Papua New Guinea
- Nickel suppliers: Indonesia, New Caledonia
- Wheat suppliers: Australia, India
Countries most vulnerable to rising prices (imports from Russia/Ukraine as a percentage of world imports in 2020):
- Fertilizers: Indonesia (more than 15%), Vietnam (more than 10%), Thailand (more than 10%), Malaysia (about 10%), India (more than 6%), Bangladesh (almost 5%), Myanmar ( about 3%), Sri Lanka (about 2%)
- Grain from Russia: Pakistan (approx. 40%), Sri Lanka (more than 30%), Bangladesh (more than 20%), Vietnam (almost 10%), Thailand (approx. 5%), Philippines (approx. 5% ), Indonesia (less than 5%), Myanmar (less than 5%), Malaysia (less than 5%)
- Grains from Ukraine: Pakistan (almost 40%), Indonesia (over 20%), Bangladesh (almost 20%), Thailand (over 10%), Myanmar (over 10%), Sri Lanka (almost 10%) , Vietnam (less than 5%), Philippines (about 5%), Malaysia (about 5%)
Russian weapons
Russia is the second largest arms supplier in the world. It has been an important source of arms for China, India and Vietnam over the past two decades, the EIU stressed.
“International sanctions against Russian arms companies will impede Asian countries’ future access to these weapons,” the research firm said.
However, this will also create new opportunities for manufacturers from other countries as well as domestic manufacturers, the report said.
Countries most dependent on Russian arms imports from 2000 to 2020, ranked by share of total imports
- Mongolia (about 100%), Vietnam (over 80%), China (almost 80%), India (over 60%), Laos (over 40%), Myanmar (over 40%), Malaysia (over 20%), Indonesia (more than 10%), Bangladesh (more than 10%), Nepal (more than 10%), Pakistan (less than 10%)
Loss of Russian tourists
While Asia’s flight routes remain open to Russian airlines, tourists from the country are not allowed to visit, the EIU pointed out.
“Tourism is the main potential engagement in services trade, and with Asian air routes still open to Russian airlines, unlike those in Europe, this trade could continue (and possibly expand),” the research firm said.
“However, Russians’ willingness to travel is likely to be hampered by economic disruptions, the devaluation of the ruble and the withdrawal of international payment services from Russia,” she added.
Several Russian banks have also been banned from SWIFT, a global system connecting more than 11,000 member banks in some 200 countries and territories worldwide.
Meanwhile, at the start of the war, the ruble initially fell almost 30% against the dollar. Since then, the currency has rebounded, but was last trading about 10% lower than at the start of the year, hurting ordinary Russians’ wallets.
However, dependence on Russian tourists in Asia is still low.
Thailand was the biggest beneficiary in the region in 2019, with 1.4 million Russian visitors, according to the EIU. Still, this accounted for less than 4% of total arrivals that year. Vietnam was second, while Indonesia, Sri Lanka and the Maldives rounded out the top five Asian destinations for Russian tourists.
“However, without the conflict, Russian tourism could have gained importance given the ongoing restrictions on outbound Chinese travelers,” the EIU said.