How Can International Sanctions On Russia Impact The NZ Economy?

Friday, 11 March 2022, 7:03 pm
Press Release: Kalkine

Summary

• The ripple effects of international sanctions imposed on Russia are being felt across the globe, including New Zealand.
• Russia is one of the biggest oil suppliers globally, which ships a large proportion of oil to European countries. 
• The enforcement of sanctions on Russia could hamper trade channels with other countries, including New Zealand. 

Living in a highly globalised economy means constant exposure to international market events, with shocks on one side of the world experienced by other sides. The statement resonates with the ongoing Russia-Ukraine war, which is causing disruptions across the globe.

The conflict between Russia and Ukraine has worsened following the imposition of international sanctions on Russia, which has caused ripple effects on other economies, including New Zealand. Countries across the globe are now standing at the risk of sky-high inflation and cost of living crisis due to aggravating geopolitical tensions, which seem to be taking no breather.

To create pressure on Russia to end the war, the Western countries have imposed various sanctions on Russian exports. While New Zealand is developing its sanctions mechanism, the country already feels the effect of existing sanctions. 

It is interesting to see how the effects of restrictions imposed on Russia are being felt in New Zealand, the land geographically secluded from the rest of the world. Perhaps, the growing intensity of inter-continental trade explains why events in Ukraine have formed such a strong grip on the Kiwi economy. 

Amidst the ongoing conflict, New Zealand might have to look for alternative sources of its imports from Russia. Kiwiland is not alone in this quest, as several nations have been heavily dependent on Russian and Ukrainian exports. Thus, enforcement of sanctions on Russia could hamper trade channels with other countries, including New Zealand.

GOOD READ: New Zealand placed on Russia’s ‘unfriendly’ countries list

Adding fuel to inflation fire

Over recent years, economic recovery in an environment plagued by the constant threat of new virus cases has led to large-scale supply-side delays and snags. While economies had barely emerged from the pandemic-induced slowdown, supply-chain disruptions and massive political unrest in Ukraine have exacerbated the economic concerns. 

Specifically, inflationary pressures developing due to supply-chain bottlenecks have intensified after the Russia-Ukraine war broke out. Rising inflation is already visible in crude prices due to restricted oil exports from Russia - one of the largest oil suppliers in the world. Russia withheld its oil exports to Europe even before the war with Ukraine took place. Consequently, oil prices have shot up alongside events in Ukraine throughout February. 

However, countries have come together in a bid to facilitate a smoother supply of oil reserves across the globe. The Western countries are utilising their emergency oil reserves to fulfil global demand. Despite the collective efforts, intense short-term effects are felt across economies, primarily in crude prices. 

Adding further heat, Russia has threatened to completely cut off its gas pipeline with Germany if the West bans Russian oil. Thus, energy prices are expected to remain volatile for some time.

Impact on food grains 

So far, most of the high-level sanctions target Russian financial systems to make their payment mechanisms slower and inefficient. These measures embraced by Western countries display the sheer competence of modern-day methods in crippling a nation without using any force. However, a side-effect of these measures is that the impact would be felt worldwide. 

Russia and Ukraine have a large share in the exports of food grains, specifically wheat, corn, and sunflower seeds. With their international payment systems becoming handicapped, holding cross-border transactions could become a painful task for foreign trade partners. Thus, blocking trade from Russia and Ukraine would mean a lower supply of essential food grains to other countries, including New Zealand.

Some effect of disrupted supply is already seen in wheat prices, which recently reached a 14-year high throughout the globe. While New Zealand is not directly dependent on Russian imports of food grains, global price effects travel across borders and impact domestic consumers. Additionally, some of the largest banks in Russia have been disconnected from the global financial network, making business activities highly uneconomical. 

Fears loom that the devastating effects of geopolitical tensions could ultimately fall on the domestic consumers, making them bear the cost of the ongoing war in terms of high inflation. Meanwhile, the largely skewed repercussions of war could create room for leaders to experiment and break existing rules and regulations. While the retaliatory measures against Russia might be harmful in the short run, it is likely that alternate sources of commodities will be established in some time. 

GOOD READ: What should you know about warnings of World War 3?

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