Nearly two months after Russian President Vladimir Putin decided to invade Ukraine, Asian countries are bracing for rising inflation and supply chain disruptions, following mounting sanctions on the Russian state.
According to experts, the most affected Asian country is Thailand, where trading in raw materials with its European counterpart has become almost impossible. Different types of commodities traded and individuals who trade have been hardest hit. One such person is Peyton Enloe, a Bangkok-based exporter, who says it’s difficult to get Thai fruits and vegetables onto Russian supermarket shelves.
The sanctions have weighed heavily on the Russian currency, which has fallen to record lows, meaning Russian consumers have had to cut back on what they consider a luxury.
Russia has already defaulted on its last debt payments.
Even Russia’s fleet of Aeroflot planes, which exporters rely on to transport their products, are running out of space as flights fill up with Russian tourists cutting short their vacations. And most of the fleet is leased, which means it risks being confiscated by lessors if planes land on foreign soil.
Enloe, managing director of Purithai Produce, says exporters have lost access to the Russian market. His Russian customers told him they didn’t even have the money to buy even the basics, let alone “exotic” fruits like mangoes, rambutans and durians from a country like Thailand.
The fragile post-pandemic recoveries of most Asian economies have come into question as oil prices continue to climb, topping $120 a barrel, but have recently come down a bit. This threatens a new wave of rising inflation and supply chain crisis – challenging governments who have already had to spend heavily during the pandemic to find more resources to protect their populations from rising costs.
Supply chain disruptions
Ukraine’s invasion and violence disrupted the flow of goods between continents, forcing major shipping companies such as CMA CGM and Maersk to declare that they would no longer serve Russian ports. This means that Asia’s largest economies are likely to suffer from rising energy prices given their dependence on imported oil and gas, of which Russia is the third and second largest supplier respectively. global.
However, all is not lost as Tommy Wu of Oxford Economics in Hong Kong believes that Asia will not be impacted much compared to Russia and the rest of Europe. But rising global energy prices and slowing global trade will weigh on the recovery in Asia, especially in countries heavily dependent on oil imports like South Korea, Japan and India.
According to Julian Evans-Pritchard, senior China economist at Capital Economics; even China, which remained silent after the invasion of Ukraine, does not stand to benefit if there is a prolonged slowdown in global growth due to the war. The Asian giant remains one of the few willing to trade with Russia at the moment, and as the European nation isolates itself, it will rely heavily on China.
This will likely present opportunities for Chinese companies to take market share from Western suppliers and buy power at a discount. However, these gains will be small compared to the cost the nation will incur due to rising commodity prices and the impact these price increases have put on the real incomes of consumers in the major export markets of China.
Thailand suffers the economic repercussions of the war
Reports from Thailand, Southeast Asia’s second-largest economy and one of the hardest hit by the pandemic, indicate that the economic fallout from the Russian invasion is mostly felt in specific sectors. Even though only 1% of Thai exports go to Russia, companies operating in the country face severe supply chain disruptions.
This is underlined by Enloe, who has worked in Thai agricultural businesses for over ten years. Aeroflot’s ban in most European countries will be a long-term problem. The delivery of farm-fresh produce to Russia and other European countries depends on the speed and reliability of conditions.
Following the pandemic, Thailand has tried to revive its tourism sector after two years of difficulties, and Russia has been the country’s biggest source of tourists. However, since the invasion, many Russians have had to give up their vacations to run business and other affairs at home. Others had to leave, following the fall of the rouble, which made their stay 30% more expensive overnight.
And those who are still in Russia and want to travel are finding it difficult to pay for their trips after some Russian banks were cut off from the SWIFT international payment system. In the wake of difficult times, Thai Prime Minister Prayuth Chan-O-Cha appealed to the public for understanding. In early March, speaking to reporters, he revealed the government was discussing measures to freeze petrol prices and try to help where it could.
Already small shippers at the Thai port of Leam Chabang are demanding an oil surcharge of almost 4% from freight customers. As is the case in such situations, the costs are likely to be passed on to consumers who find it difficult to month of rising prices.
Just a few weeks ago, the country’s Commerce Ministry reported that inflation in February hit 5.3%, the highest rate in more than a decade and well above forecasts. Unfortunately, analysts think the worst is yet to come as The Russia-Ukraine war continues dim hopes of a quick economic recovery.