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Vladimir Putin’s decision to wage war on Ukraine threatens to turn what was an already uncomfortable inflationary situation into something far worse.
The most obvious consequence of the war will be in the price of hydrocarbons. The invasion has already sent the price of a barrel of Brent crude to as much as $105.33 this morning – a level last seen on 11 August 2014.
Higher oil prices effectively represent a tax on growth.
Ukraine ‘attacked from Russia, Belarus and Crimea’ – latest live updates
Most consumers associate it with higher household energy prices and higher petrol prices – the RAC has already warned of that in the near term.
But higher crude prices feed through to just about every other type of consumer good, including food and drink, via higher transport, packaging, manufacturing and processing costs.
The global markets strategy team at JP Morgan, the investment bank, point out that in 2014, when the price of crude was trading at an average of $100 per barrel, oil consumers spent some $3.4trn on crude and related products.
When it subsequently fell to an average of $45 per barrel, in 2016, those consumers were spending $1.6trn – in other words an income transfer of $1.8trn from oil producers to consumers.
They add: “This year, a recovery in oil demand along with our commodity strategists’ revised oil price forecasts would imply an increase in the spending on crude and related products by consumers from $1.4trn in 2020 to $3.6trn in 2022, an effective income transfer of $2.2trn or 2.3% of global GDP.”
That is a colossal transfer of wealth from consumers to oil and gas producers such as Saudi Arabia, the United States and, yes, Russia.
It is likely in particular to feed through to higher prices of goods manufactured in Germany, such as cars and machine tools, due to the country’s unusually high dependence on Russian gas to power its industry.
But Mr Putin’s war will have plenty of…
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Source : skynews
