THE CONSEQUENCES OF UKRAINIAN WAR (part II): Resource famine

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Credits: ABC news

The ongoing conflict in Ukraine is heavily reshaping the world. The geopolitical turmoil will influence not only balances among countries, but it will also affect other international sectors. What is prospecting in the future it is aglobal crisis due to the shortage of food and the lack of raw materials, thus increasing instability as well as the fearof famines and rationing.

Chains disruption

Previously we have addressed how the war in the east is marking a deep separation between West and a forming Euroasiatic block. However, this is only the tip of an iceberg which is destined to increase in the following monthsdue further economic, energy and social emergencies.

Already in late March, the economist Klaus Schwab declared that: “Despite we do not yet know the full extent and thesystemic and structural changes which will happen, however we do know that the global energy systems, food systemsand supply chains will be deeply affected “.

Currently energy costs and the shortage of metals or electrical components are already blocking the activity of several industries, also forcing in some cases the suspension of production. An example is the auto industry due to global chip shortages and rising battery costs. European auto makers are in crisis since Ukrainian wiring, raw materials fromRussia and other components are lacking.

Moreover, violent demonstrations, which are erupting around the world, seem to confirm further Schwab’s statement. In Peru people have violently protested against the price increases of fuel, basic necessities and fertilizers, as a directconsequence of the Ukrainian conflict.

Also in Africa we are witnessing a growing instability. Tunisia has been overwhelmed by a wave of protests caused by the rise in food prices since the country depends more than 50% on exports from abroad. In general the entire North Africa and the sub-Saharan area could soon face economic repercussions in the short term, due to theblockage of grain exports from Ukrainian ports.

The same goes for in Asia and the Middle East. Sri Lanka, already hit by a crisis of lack of medicines and now bythe shortage of food, electricity and raw materials such as gas and oil. Even in resource-rich Iran, hunger has begun to take its toll in the form of violent anti-government

clashes after the surge of some essential goods, such as bread.

The ghost of famine

The growing lack of food seems destined to cause the greatest damage in the short and long term. Recently The Guardian wrote that we are facing the end of “cheap food era”, suggesting that the price of food will continue to rise in the future. Before the conflict, Ukraine and Russia accounted for about one third of the world’s grain andbarley supplies, without mentioning the sunflower oil.

Having also lost control of the ports in Mariupol and Kherson, grain shipments are impossible. While from theharbors of Odessa and Nikolaev, which are likely to be conquered by Russian forces in the future, ships are struggling to sail due to the presence of marine mines in the surrounding waters.

In this situation of growing food instability, countries are trying to run for cover. India has recently blocked wheat exports with the intention to control domestic prices, due to heat waves that have put the national sector in crisis.Along with Delhi, countries such as Kazakhstan, Egypt and Serbia have also imposed a block on international grainsales.

The agri-food markets are severely destabilized, with the risk of causing a further rise in prices at the expense of developing countries in Asia and Africa; but crisis does not stop only cereals. In addition to wheat, India has also curbed sugar exports, while in countries such as Malaysia the sale of poultry for abroad has been prevented. The same goes for Indonesia which recently closed the export of palm oil.

According to a statement by Serbian President Vučić , if the conflict in Ukraine does not end soon more than a quarter of the world population is going to run out of food, forcing the world to face the worst food crisis of the last 70 years. However it is not only the potential shortage of food, the long wave of the energy and raw materials crisis is also worrying the global order.

Energy shortage

Although it was already on the horizon due to the COVID pandemic, now with the prolongation of the conflict andthe approval of numerous sanctions against Moscow, energy supplies are beginning to lack on the global market. According to a recent statement by the oil ministers of Saudi Arabia and the UAE, the unused energy capacity in theworld is decreasing in all sectors.

This shortage, also due to the few investments in production and refining, is making fuels more expensive, forcingOPEC not to guarantee sufficient supplies in the future, since no member will not increase production to meet geopolitical demands.

In this situation, the most exposed countries and those historically dependent on foreign supplies, such as the EU, are forced to seek energy supplies from other parts of the world, scrambling the delicate geopolitical balances and stressing both internal and global trade as well as economic disparities.

On the one hand, the new demand for alternative materials to the Russian market has prompted EU countries to turn their attention not only to the American offer of LNG; but also to Africa, as demonstrated by the recent Italian diplomatic visits in Algeria, Congo and Angola, and by the mission in Qatar of the German economy minister RobertHabeck.

On the other hand, having excluded Russia as the main energy supplier of raw materials, the growing demand forresources by industrialized countries in other markets would lead to a decrease

in availability, which risks in the long term to trigger a “clash for resources” since companies are going to diversify the suppliers of key components with multiple agreements, thus monopolizing the international market.

Yet, despite the lack of logistics to switch to new sources or suppliers, the EU has voted by a large majority the demand for its members for a total embargo of the main Russian energy sources and eventually the blockade ofmaterials such as iron, steel, aluminum, cereals and other goods, with the result that everything will be more expensive.

Prince increase

Although Europe and the West are willing to do “whatever it takes” in the name of energy and industrial sovereignty, including a total reduction of Russian oil and gas by 2027, according to the Financial Times, around 195 billion euroswill be needed for the next 5 years in order to break free from dependence on energy supplies.

A policy that could heavily affect the productive fabric of the old continent and in particular of those countries with an industrial structure like Germany as shown by the report of the five largest German economic institutions (Ifw,Ifo, Diw, Rwi, Iwh). If the extension of the embargo to Russian gas and oil were total, it would mean rationing if not the closure of entire manufacturing plants and the high risk of ending up in recession causing mass poverty in Europe.

Already the producer prices in Euro zone have risen by 36% on an annual basis due to speculators, while the alarm of “expensive materials” is getting worse since the dependence of many European industries on strategic metals, produced by Russia and Ukraine, is in some cases almost total or more than 50% of the requirement.

Furthermore, since the Euro is at its lowest against the dollar compared to the last two years, buying is even more expensive for European companies, given that the main commodities are quoted in dollars. At the London Metal Exchange, the world’s leading market for industrial metals, prices for resources such as copper, aluminum, nickel and other iron or steel materials have skyrocketed in this months and prices do not seem to reduce in the comingmonths.

As a result of this rise in prices and running inflation, world will also face an economic turning point. The currentfinancial structure, based on American dollar, might be not the same in future and it is highly possible that we will witness the rise of new financial systems completely parallel to the Western ones. To better understand this further element, in the third part, we will deal with the economic consequences of this conflict and what they will mean for the global growth.

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