• Richard Puppin

Ukraine-Russia War: Implications worldwide with a closer glance at the EU and LATAM & the Caribbean


Photo credit: https://www.csgef.org/russias-economic-outreach-in-latin-america



Introduction


Following eight years of low-intensity going hostilities in Donetsk and Luhansk regions, during the past months Russia had been massing more than 100,000 troops around Ukrainian borders, including holding joint military exercises with the like-minded Belarusian regime starting from February 10, 2022. On February 24, Russia launched its full-scale invasion of Ukraine on purposes of demilitarising and denazifying the country, and with the intent to depose its allegedly "Western coup-imposed" government.


Over two months into the conflict, and implications have been widely seen. In the first section, the focus will be placed on Western countries, their proactive response on different levels and particularly on the state of EU-Russia relations. In the second section, considerations around conflict-related booming prices of natural resources and agricultural commodities worldwide will be presented in how they are disrupting global supply chains, making low-income food import dependent countries particularly vulnerable. In the third section, Latin America and the Caribbean alignment on the war will be introduced before shedding a light on what are the bonds within Russia and the region, and how local governments are provided with both destabilising and potentially encouraging factors to overcome at once Covid-19 pandemic disruptions and recurrent local markets distortions.


Section One: Western Bloc, the EU and Russia - Sanctions and Reciprocal Dependance


It can be argued that the war has found Western countries and society able to show an unexpected strength in intents and unity in actions. NATO, whose largest share of members had been employing way lower than the targeted 2% of their GDP for defence expenditures, is reversing the trend and reviving as an organisation, attractive to traditionally neutral countries such as Sweden and especially Finland, where polls and public debate show increasing favourability to join (Gramer & Mackinnon, 2022; Wall, Monaghan & Morcos, 2022). In parallel, Switzerland carried out a sharp deviation from its long-standing principle of neutrality in foreign policy, adopting EU sanctions against Russians involved in the invasion and having frozen some 7.5 billion Swiss francs ($8.03 billion) in funds and assets (Carrel & Shields, 2022). Countries like Moldova, and Ukraine itself by mouth of President Volodymyr Zelens'kyj repeatedly expressed strong desire to join the EU in the upcoming months: in some aspects, the group of 27 are currently providing an unprecedented unity in intent, namely in sharing efforts to freely welcome an exceptional wave of refugees entering its borders.


Rounds of sanctions - with supposedly more to follow - have been imposed to re-inforce pressure on Russian government and economy, and to limit the Kremlin’s resources for the aggression, above all prohibiting public financing and investment to the country, and excluding some key banks (but not the most-powerful Sberbank and Gazprombank) from SWIFT, the world’s dominant financial messaging system. Particularly relevant, on April 7, an European Parliament plenary session officially called for additional punitive measures, including “an immediate full embargo on Russian imports of oil, coal, nuclear fuel and gas”, being revenues from fossil fuels sales used to finance the war.


Notwithstanding, as for the fifth round, an agreement was reached only to "prohibit the purchase, import or transfer of coal and other solid fossil fuels into the EU if they originate in Russia or are exported from there" (CoE, 2022). Overall 40% of the natural gas imported by the EU comes from Russia (Buchholz, 2022) and, according to estimates, countries such as Austria, Czech Republic, Estonia, Finland, Latvia all have dependency rates on Russian gas supplies between 64% and 100%; equally relevant, for Germany and Italy data show 49% and 46% respectively (Agency for the Cooperation of Energy Regulators, 2021). While the EU aims to cut its reliance on Russian gas by two-thirds by the end of the year (Edmond, 2022), it is estimated: "to switch out all Russian gas with renewables, the EU would have to install 370 gigawatts of wind farms - more than ten times the wind capacity that the EU wants to install annually by 2030" (Subramanian, 2022). Similarly, a quarter of crude oil imports to the EU comes from Russia: in 2021, member states bought 2.3 million barrels a day of Russian oil, totalling almost half of Russian exports. Countries such as Germany and the Netherlands spent the equivalent of over 10 billion EUR each, while Poland's expenditure was estimated at more than 8 billions (Europe Beyond Coal, 2022).


Where sanctions proved effective is decoupling Russia from supplies of high-tech goods, whose imports are worth around $19 billion annually. The combination of technological and financial sanctions, not to mention public pressure and reputation risk has made the decision to leave the local market easier for companies (and not just those from Western-aligned countries). To this regard, "most nuclear technology imports in 2019 came from the EU (68%), which was as well the main provider of biotechnology, electronics, life sciences and flexible manufacturing goods". As finding alternative suppliers is complicated by the degree of product sophistication, Moscow has so far unsuccessfully resisted technological sanctions by import substitution and, in the long term, shortages are believed to severely affect the country's insertion in the global economy (Erixon et al., 2022; Wolff, 2022).


Section Two: Soaring Commodities Prices and Global Disruptions


Surely, Ukraine-Russia war implications do not attain or pertain to just Western bloc-Russia relations, nor crude oil and natural gas list as the sole commodities whose unmatched demand has been generating scarcity and thus a rising-trend price spiral since. Instances of natural resources include coal, nickel and neon amongst all. Regarding coal, it "is still the main fuel generating electricity in developing and emerging economies, including China and India (around 65% and 60% respectively)" with Russia being its third largest exporter (estimated 14% of global briquettes) - lagging only behind Australia and Indonesia. Coal is currently traded with almost doubled values per ton over pre-war levels. Similarly, over 28% of global nickel demand is met by Russian exports. Nickel is widely employed, notably for coins and battery technologies: at the moment, no practical scenario envisages a short-term replacement of Russia since its two closest competitors (Australia and Canada) do not reach a combined market share of 26%. Finally, half of the world's neon supplies come from Russia and Ukraine combined: "a byproduct of steel manufacturing, [which] is central to the semiconductor industry, neon is known for being employed in the chip industry. Global economic activity could as well be undermined by shortages of iron and steel, aluminium, platinum and palladium (Mohseni-Cheraghlou, 2022).


Food commodities prices, especially grains and vegetable oils, have been soaring in the past weeks as well. Ukraine and Russia together account for 30% of global trade in wheat, 17% of maize (Ukraine being the fourth largest exporter) and more than 55% of sunflower seed oil: similar data are not to be found surprising, since one out of the two (or both) were "amongst the top three global exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil" in 2021. Similarly, Russia is usually "ranked as the top world exporter of nitrogen fertilisers, the second leading supplier of potassium, and the third largest exporter of phosphorus fertiliser". Key immediate areas of concern specifically include "disrupted winter harvesting and spring planting, reduced labor availability (due to displacement inside and outside the country), lesser access to agricultural inputs (fuel, seeds, fertilisers and pesticides), abandonment of land and logistical damage caused by military activity" (FAO, 2022). Remarkably, "almost 40% of the agricultural production in Ukraine is done by small-holder farmers", who are now most probably engaged in territorial defence (CSIS, 2022). Furthermore, "roughly two-thirds of Ukraine’s grain exports and three-quarters of sunflower seed oil exports leave via the country’s Black Sea ports", many of which are located in under-attack areas and thus closed: and, "on March 1, the world’s three biggest container lines - Switzerland’s Mediterranean Shipping Company (MSC), Denmark’s Maersk and France’s CMA CGM - temporarily suspended cargo shipments to and from Russia in response to US and EU sanctions on the country" (EIU, 2022).


In such context, where nearly 50 countries depend on these two for at least 30%, and 26 countries (Bangladesh, Egypt, Iran and Turkey included) for over 50% of their wheat import needs, multiple implications are feared for global food security, notably regarding the group of low-income food import dependent countries, together with their vulnerable population groups (FAO, 2022). Adding to local conflicts, droughts, floods, increasing food prices and restricted supplies are already seen in West Africa, where the worst food crisis in a decade has caused "the number of citi