AA principal policy adviser Terry Collins tells Kiwis what to expect at the pump as Russia's invasion of Ukraine affects the global oil market. Video / NZ Herald
Beer. Bread. Microchips. Sofas. These are the telltale first signs of looming economic carnage triggered by Russian President Vladimir Putin's war in Ukraine.
Things weren't great to start with.
Since the Covid-19 pandemic began two years ago, global supply networks have been seriously disrupted. Factories have been closed. Ships have been stuck in long queues to offload their cargoes. Supplies of primary resources have been slowed.
Now, just as the world's economy began its recovery, Putin has thrown a spanner in the works.
The crippling semiconductor supply crunch is worsening. That means it will take even longer for everything from new cars to gaming consoles to reach stores.
Household goods such as couches, flatpack furniture and white goods are stuck in shipping queues – if the factories that make them remain open.
Mineral supplies such as aluminium are stilted. That means brewers are struggling to secure enough to can their beer. And global grain shortages mean the wheat needed to make that beer is also more expensive.
Map of ships on standby outside the port of Shanghai. Photo / Marine Traffic
Some nations are facing a looming hunger emergency. Global food production and distribution networks are struggling under the pressures of extreme weather, pandemic lockdowns and military blockade.
It's a "perfect storm" of convergent crises, says Chicago Council on Global Affairs analyst Ertharin Cousin. "That could result in a cataclysmic spike in food prices."
"Curtailed harvests and scarcer fertiliser all but promise hunger and hardship for tens of millions," Foreign Policy international affairs analysts warn.
Hunger games
Two months of war have crippled Russian and Ukrainian exports.
Corn. Sunflower oil. Both are major global suppliers of these basic foodstuffs.
On top of that, they produce about 30 per cent of all exported wheat.
Pandemic supply chain turmoil has seen global grain prices rising steadily for more than a year. But it leapt by more than 25 per cent when Russia's tanks stormed Ukraine's border crossings.
With around 400,000sq km of agricultural land, Ukraine has been called the breadbasket of Europe. Photo / Getty
Some 1.25 million tonnes of grain are stuck in the holds of ships blockaded within Ukraine's ports. Since February, more than 57 bulk carriers – and 1000 crew – have been trapped.
That grain is likely to begin to spoil by the end of May.
"They certainly did not plan to keep this grain on the ships for a long time," Ukraine's agricultural minister Mykola Solskyi told local media.
Now Ukraine's railway network has also been attacked. This means shifting this vital food resource to its markets through Europe is no longer an option. And that's even if Ukraine lifted its export bans: It needs the food for itself.
But 26 countries are heavily reliant on Russian and Ukrainian wheat exports. And alternative sources aren't readily available.
Such shortages could result in "major socio-economic earthquakes in the Greater Middle East and parts of Africa," warns Jamestown Foundation political analyst Dr Sergey Sukhankin.
Now Putin has imposed his own embargo upon the world – ordering his fertiliser plants to limit exports. His nation is the world's top producer.
International think tank the Environmental Defence Fund (EDF) warns that the emerging worldwide food crisis is a glimpse of the world's future.
"The war in Ukraine is a wake-up call," says EDF executive director Amanda Leland.
"This is what happens when you disrupt the global food system – and that's exactly what climate change is doing, except on an even bigger scale, with lasting consequences."
Heatwaves, storms, fires and floods had already put the world in a precarious position, she says. Putin's war just pushed it over the edge.
Food for thought
Putin is confident fertiliser is a powerful economic weapon. He's told Russian media that the "West will continue buying them … No one wants to die of starvation".
The US classifies fertiliser as an essential resource. So it's not subject to sanctions.
The EU has imposed quotas. But it still needs Russian supplies to meet demand.
And the Russian President knows driving up fertiliser prices will be a vital shot in the arm for his sanctions-starved economy.
The combined fuel and fertiliser crunch "is going to impact every production in the world," says International Food Policy Research Institute (IFPRI) analyst David Laborde. "It's not just wheat."
And today's turmoil cannot help but send a tsunami of troubles through the next planting season – guaranteeing high prices and supply shortages for months to come.
"Problems with fertiliser supplies could generate severe food crises and catastrophic famines in states such as Afghanistan, Yemen and Syria," Dr Sergey Sukhankin, adviser at Gulf State Analytics, says. "Some experts argue that if the situation worsens, the Greater Middle East could experience events similar to the 2010-2011 Arab Spring."
That, at least according to Russian media, is the intention.
"Russia hopes that [fertiliser sanctions] will result in a global food crisis, mass starvation and socio-economic upheavals across the less developed world, thus compelling the developed countries to take a more cooperative approach toward Russia," Dr Sukhankin says.
"People will react when they're hungry … when the cost of food goes so high that they can't afford the rent," Chicago Council analyst Catherine Bertini told Foreign Policy.
