When Vladimir Putin grew to become the first Russian leader to go to Australia – for the 2007 APEC summit in Sydney – I had an opportunity to ask him what he considered Australia.
“I by no means consider Australia,” he replied.
Putin has in all probability not considered Australia a lot since, aside from the fuss we remodeled Russian-backed rebels in Ukraine taking pictures down Malaysian Airways MH17 in 2014, and his go to to Brisbane in 2014 for a G20 leaders summit.
Russia and Australia have restricted financial ties. However Russia’s invasion of Ukraine will ripple by the worldwide economic system, reaching so far as Australia. Russia’s actions are already affecting issues like petrol costs.
Extra considerably Putin’s belligerence may additional destabilise our already fraught relationship with China, our most vital buying and selling accomplice.
So Australia actually has motive to consider Putin’s actions now.
Russia’s essential position within the international economic system
Measured by gross home product, Russia is the world’s eleventh largest economic system, simply behind South Korea and in entrance of Brazil. Its 2020 GDP of US$1,646 billion wasn’t a lot larger than Australia’s (in thirteenth spot, with US$1,610 billion).
However Russia issues to the worldwide economic system as a result of, like Australia, it’s a main international provider of pure assets reminiscent of oil, fuel, coal, metals and wheat.
Disruption of those provides may occur by Western sanctions on Russia, or by Russia reducing off provides – or each.
The intention in both situation is to punish the opposite facet. The impact on the worldwide economic system, already threatened by inflation and COVID-related provide facet shocks, would be the identical.
Anticipate worldwide value rises
Russia can be a significant international provider of metals reminiscent of aluminium and palladium, a uncommon and costly steel utilized in catalytic converters to scale back poisonous exhaust emissions from automobiles and different autos.
Palladium has different vital makes use of too, together with in hydrogen gas know-how. Russia accounts for about 40% of worldwide provide.
Sanctions banning Russian imports will naturally cut back international provide and enhance the costs of those assets, in addition to the merchandise constituted of them.
How a lot of an inflationary impact this causes will rely on how a lot different suppliers enhance their output, or whether or not Russia can enhance gross sales to different patrons not collaborating in sanctions. China, for instance, has ended all restrictions on wheat imports from Russia
Putin has constructed robust ties with Saudi Arabia, Iran and different oil-producing and non-democratic states as a bulwark towards the West. So changing Russian provides and implementing sanctions successfully gained’t be simple.
The European Union is especially susceptible to produce shocks, because of its heavy reliance on energy imports, with 41% of the pure fuel and 27% of the crude oil it consumes coming from Russia.
For Germany, Europe’s financial powerhouse, about 34% of oil imports and 35% of its fuel imports come from Russia. This makes the German authorities’s choice to halt the Nord Stream 2 fuel pipeline being laid within the Baltic Sea between Russia and Germany a gutsy name.
Given the central position of German manufacturing to European provide chains, disruptions to its vitality provide could have main international financial implications.
The most important dangers for Australia
Within the very quick time period, there could also be some upsides for Australian exporters, reminiscent of wheat farmers.
Russia is the world’s largest wheat exporter and Ukraine, lengthy often called Europe’s bread basket, is the fifth (Australia is sixth).
The doubtless disruption to those provides will be anticipated to extend the world wheat value, as occurred in 2014 when Russia annexed Crimea.
Australia can be a major natural gas exporter. Nevertheless, as a result of it exports that fuel by ship (as liquefied pure fuel) slightly than by pipelines, there are constraints on it rising exports within the close to time period.
So some Australian exporters who compete with Russian suppliers ought to profit from increased costs within the quick run. However these advantages will quickly be overrun by the adversarial affect of worldwide financial disruption.
The most important danger to Australia, although, is that if China decides to comply with Russia’s lead.
We noticed on the Beijing Winter Olympics the warming of what has traditionally been a frosty Sino-Russian relationship. Putin and Xi Jinping have a lot in widespread.
If Xi sees the West being divided and weak over Ukraine, because it was over Afghanistan, then he might make issues harder for Taiwan. This could jeopardise Australia’s commerce with China.
What else will be executed?
All of the indicators are that Putin is ready to trip out sanctions, playing that he has sufficient reserves to robust them out or sufficient buddies to undermine their effectiveness.
What else will be executed?
One choice is a robust financial strengthening of Ukraine by commerce and infrastructure measures. This might embody the European Union granting Ukraine preferential commerce and funding offers, and the Western allies assuring it beneficial provide of pure assets.
Russia might wish to intimidate, but it surely doesn’t have the financial energy of a united opposition, together with the US, European and Asia-Pacific nations.
There is probably not a right away army resolution, nor a neat diplomatic repair. However the financial dimensions to the disaster could also be extra in favour of Ukraine than first meets the attention.