ZAHID HUSSAIN

The economic damage from supply disruptions triggered by the confluence of events around the Russian invasion of Ukraine would be severe in some countries and industries and less so in others depending on the depth and breadth of economic ties, mainly with Russia because of its size, and the degree of integration with global commodity and financial markets. It is hard to imagine circumstances under which any country can escape the near-term economic impact of the Ukraine crisis in this globalised world.

The impact is not just because of disruptions caused by the war but also the multifarious economic sanctions against Russia imposed by the US, the EU, the UK, Japan, and several others. Even neutral Switzerland has adopted EU sanctions.

Global banks are bracing for the effects of sanctions designed to restrict Russia’s access to foreign capital and limit Russia’s ability to process payments in dollars, euros, pounds, and yens which are crucial for trade. Large parts of the Russian economy will be a no-go zone for banks and financial firms after the decision to cut off some of its banks from SWIFT.

The situation has prompted a fast-growing list of large multinational corporations to shun Russia because of concerns about their financial and reputational risks. Among others, western oil and high-tech companies have severed or restricted ties with the Russian economy. US payment card firms Visa and Mastercard have blocked multiple Russian financial institutions from their network. Shipping giant Maersk has halted all container shipping deliveries to and from Russia.

The crisis is weighing heavily on the markets because of Russia’s central role as a global energy producer. Russia is the third-largest producer of oil, providing roughly one of every 10 barrels the global economy consumes. Surging energy costs will ripple quickly through the global economy, fueling inflation further. Since December, oil prices have risen more than 40 per cent. Releases from the global oil reserve may only temporarily alleviate the shortage.

The sanctions could disrupt Russia’s ability to export other commodities, including natural gas and wheat. Natural gas reserves are running low. Russia is the world’s largest supplier of wheat and, together with Ukraine, accounts for nearly a quarter of total global exports. Other commodities tied to Russia and Ukraine, such as gold, aluminium, corn, and nickel, have been trading at multiyear highs since the eruption of the conflict.

Russia has banned air carriers from 36 countries, including European nations and Canada, from its highly trafficked airspace after the EU took similar action against Russian airlines. By forcing major airlines to take longer, more circuitous routes to Asia and the Middle East, this will increase ticket prices for travellers. There can be other retaliation by Russia in the days to come that may increase the cost and risk of doing international business.

The impact on the Bangladesh economy can be through disruptions in bilateral trade with Russia, rise in import payments, fall in export receipts, pressure on the exchange rate and a weakening of Russia’s ability to deliver aid.