Nearly a month since Russia launched its invasion of Ukraine, the economic impact is beginning to be felt across the world, including in Asia. In India, the edible oil market, which depends heavily on Russian and Ukrainian imports, has been hit hard, while the Bangladeshi economy is also reeling. Southeast Asian states, while not directly impacted, will also feel the indirect effects. Indians consume about 25 million tons of edible oil each year, more than half of which is imported, according to rating agency CRISIL. That makes it the largest importer of edible oils in the world — and much of that oil comes from the war zone.
Over the last four months, about 85 per cent of India's sunflower oil was imported from Ukraine, 14 per cent from Russia and the rest from Argentina, according to the Solvent Extractors' Association of India, a vegetable oil industry body. In addition, wheat prices have spiked due to an extraordinary global demand over fears that the Russia-Ukraine war could adversely impact supplies of the grain. The two countries account for 25 per cent of the international wheat trade.
"India's consumer inflation reading has just crossed 6 per cent, which is the upper limit of the central bank, the Reserve Bank of India's comfort zone," economic analyst M K Venu told DW . The restrictions on the movement of ships in the Black Sea have also affected India's exports to the former Soviet republics of the Commonwealth of Independent States, due to the inadequacy of shipping lines.
Sanctions impact Indian exports
The sanctions implemented by the West on Russian banks from accessing the SWIFT banking system have also affected Indian exporters. The Indian government is still in the process of working out a rupee-ruble trade arrangement, to ease cross-border transactions. Indian exporters, meanwhile, are worried as they have payments of $400-600 million (€362-€543 million) pending in Russia. "Major supplies of sunflower oil come from Ukraine, and 13 per cent of India's export of tea went to Russia. India is also a significant importer of phosphatic fertilizers from Russia," said Lekha Chakraborty, a senior economist at the National Institute of Public Finance and Policy.
The jump in global fuel prices since the beginning of the conflict in Ukraine has only added to India's challenges. The Indian Oil Corporation Limited recently signed a deal with a Russian oil company to import 3 million barrels of crude. India depends on imports for about 80 per cent of its oil needs, with 3 per cent of that coming from Russia. India's oil and petroleum imports from Russia amount to nearly $1 billion.
Bangladesh takes economic hit
Meanwhile, Bangladesh's economy is already feeling the sting of the ongoing war. The leap in oil prices in the world market has hiked the country's other commodity prices, and has also been reflected in the cost of doing business. In mid March, state-owned Bangladesh Petroleum Corporation estimated an incurred loss of about €2 million per day. Exporters reported an elevated cost of shipping and other related expenses, especially on the part of ready-made garment exporters, which account for 80 per cent of Bangladesh's export business.
"We were already facing price increases on raw materials and shipping during COVID. It has further increased due to the war-induced oil price hikes," said Mohammad Hatem, the first vice president of the Bangladesh Knitwear Manufacturers and Exporters Association. "Before COVID, the cost was around $1,500-1,800 to ship a 40-foot container to Hamburg. Now it costs $10,000," he added.
"The economic impact is twofold," Zahid Hussain, former lead economist of the World Bank's Bangladesh chapter, told DW , citing both internal inflation and a rise in import prices. Initially, trade between Bangladesh and Russia was also impaired due to the sanctions placed on Russian banks. However, Bangladeshi exporters have found an alternative way, through China, to continue the trade with Russia.
Bilateral trade between Bangladesh and Russia has accounted for $1.14 billion in the last fiscal year. In that period, Bangladesh exported products worth over $665 million to Russia. Though this represents only 1 per cent of Bangladesh's total global trade, which is worth over $104.35 billion, Russia is considered to be an emerging market for the South Asian nation. "To keep the trade with Russia alive through Chinese gateways is a temporary solution. I don't think it will be sustainable," said Hussain. "Bangladesh's major trade is with the European Union, the United States and Australia. Even with China, Bangladesh uses SWIFT."
Southeast Asia to have easier time of it
The effects of the war won't be felt as strongly in Southeast Asia. Russia was only the ninth-largest trade partner for the region in 2019, when trade was worth a paltry €17 billion, and there are few major Russian investments that could be jeopardized by the severe sanctions imposed on Russia's economy and its financial institutions.
Its two historic partners in the region, Vietnam and Laos — who were the only two Southeast Asian states to abstain in the recent U.N. General Assembly resolution against Russia's invasion — are arguably the most at risk in terms of trade. Yet Russia and Ukraine make up less than 4% of Vietnam's total annual trade, according to government data.
'Little-to-no impact on Vietnam's financial sector'
"We see little-to-no impact on Vietnam's financial sector," said Thu Nguyen, the head of investment at VinaCapital, one of Vietnam's largest investment management firms. While it's possible that the war in Ukraine could lead to a spike in inflation, she added that he situation is under control at the moment. But as with the rest of Southeast Asia, it will be the indirect impacts of the war — from the disruption of the global supply chains and rising energy and food prices — that will be critical, especially since the Vietnamese economy "is very vulnerable to external shocks," said Nguyen Khac Giang, an analyst at the Victoria University of Wellington in New Zealand.
Fuel prices have been at their highest on record since last week, he noted. That's good news for Vietnamese firms producing oil and gas offshore, as well as for the state coffers: government revenue from crude oil increased by 57 per cent in the first two months of the year, according to a Finance Ministry statement. But it will constrain the self-employed and small-business owners, and is likely to push up export costs for many of Vietnam's manufacturing industries.
Food security remains a concern, however. In the first six months of 2021, Russia became Vietnam's largest meat supplier, with exports increasing year-on-year by more than 450 per cent. The war's impact on agriculture is a concern for the rest of the region, too. Russia and Ukraine provide around 15 per cent of the wheat, oats and other cereals consumed in Southeast Asia. Indonesia is the fourth-largest importer of wheat from the two countries, while the Philippines is 10th. Russia provides nearly 10 per cent of the region's fertilizer.
Perhaps most worrying for Vietnam is that it is now one of the most interconnected countries in the world economy. Its trade-to-GDP ratio, at 210 per cent, is among the top 10 globally. Vietnam's rising tech export industry is also expected to be hit by a downturn in exports from Russia, mainly of nickel, krypton, aluminum and palladium — all used for semiconductors.
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