Economic Watch: Global consumers financially squeezed as Ukraine crisis continues
Ukraine crisis The Russia-Ukraine conflict has sent commodity prices through the roof over the past month, forcing global consumers to pay more for various goods from energy to food.
HIGH PRICES AT THE PUMP
Fears of an oil supply shortage have added to the price volatility. Brent crude, a global benchmark, remains comfortably above 100 U.S. dollars per barrel, which has sent prices at the pump to new highs across Europe.
In Britain, petrol and diesel prices broke records “almost daily,” with the cost to fill up a petrol car at over 92 pounds (120 dollars) and a diesel vehicle at nearly 100 pounds, said Nicholas Lyes, head of policy at British automotive services company RAC, earlier this month.
In Greece, Maria Zagka, president of Attica’s Gas Station Owners’ Association, told Xinhua that the fuel-price situation remains tough. “Things are difficult for the sector, gas station owners and consumers. Fuel is now a sort of luxury product, and we forget that it is a social good. People need it to go to work,” Zagka said.
Denmark did not fare well either. Darius Kolodziejski, a customer at a local gas station, told Xinhua that around October or November last year, it cost around 400 Danish Krones (60 dollars) to fill up his small car to the maximum, but in March, the price rose to almost 510 Krones to fill up a full tank.
“I would say it’s very high,” Kolodziejski said. “I think it is a little bit crazy that the prices just peak up so high.”
Amid soaring oil prices, consumers have decided to cut back their spending.
“I had a big surprise going to the petrol station and finding the price going up literally daily. That hurts,” Nigel Barnard, a pensioner in Denmark, told Xinhua. “And it means that when you go shopping for other things, you don’t want to buy quite so much because you’re losing money that way. So, yes, it’s a problem.”
IMPACT BEYOND EUROPE
Many held that Europe would take the brunt of the spillover due to its proximity to the Ukraine crisis and its reliance on Russian energy. With the conflict evolving and jolting markets worldwide, global consumers are feeling the pain.
In the United States, retail gasoline prices hit record highs in March, reaching well above the previous peak of 4.165 dollars a gallon seen in July 2008. Gas is a big factor in U.S. household budgets, according to Ed Crooks, an analyst at the energy consultancy Wood Mackenzie.
A glance at the hashtag #gasprices on the social network platform Instagram shows posts from thousands of Americans complaining or making bitter jokes about the cost of fuel, said Crooks. “You can tell that energy has become a significant political issue when it starts showing up on social media.”
Motorists in Africa have also felt the sting of rising prices.
“No one can say it doesn’t matter. Because it’s a big deal these days,” said Ishimwe Eric, a resident in the Rwandan capital of Kigali. “You put in 10,000 Frw (about 9.9 dollars) and go a little further to feel that the gasoline is gone. Seriously, it is so frustrating. It is very hard for people who drive.”
The fallout of soaring energy prices could quickly ripple, pushing up the costs of living expenses. Kelly Rwamapera, a resident in Kigali, said the prices of many daily products have already surged.
Noting that countries like Ukraine and Russia are major exporters of energy and many agriculture products, Rwamapera said that “we expect more prices to increase.”
Several Middle East countries saw cereal, oil and meat prices climb too. In Egypt, the world’s largest wheat importer, the market price of a ton of flour increased to 11,000 Egyptian pounds (600 dollars) in March, up from 9,000 pounds a month earlier, according to Attia Hammad, head of the Bakeries division at the Cairo Chamber of Commerce.
Cristian-Dan Tataru, a guest analyst for the Washington-based Middle East Institute, said that food prices have reached levels comparable to those before the 2011 political turmoil in the Arab world.
NO QUICK FIX
Analysts noted that sanctions against Russia have come at the expense of Europe. Igor Grozdanic, a Croatian energy expert, told Xinhua in an interview that the sanctions were “problematic,” especially for the energy industry.
“The most vulnerable is Germany, which doesn’t have enough natural gas,” Grozdanic said. “Luckily, Nord Stream 1 is still operating. If Nord Stream 1 is shut down, it would be a disaster for Germany and the European Union, so the situation is not good.”
As Europe redesigns its future energy supplies, no easy answers are expected for the region to reduce its dependence on Russian energy in the short term.
“The question that really remains is just about reorienting it away from Russia, which is going to be challenging. It will take years,” Michael Bradshaw, professor of global energy at the University of Warwick, told Xinhua. “This is actually at the same time going to deliver an overall reduction in the amount of fossil fuel consumption in Europe.”
Divergences within the European Union are not helping. “Each European member state faces a different set of challenges and that’s part of the complexity of dealing with EU 27 member states,” Bradshaw added.
In the United States, high prices were likely to continue. Noting a Wood Mackenzie forecast that U.S. crude production will grow by 730,000 barrels per day this year, Crooks said even that pace of growth is not enough to calm oil markets that have focused on the impact of sanctions on Russia.
“Realistically, any acceleration would be unlikely to make much difference to production this year,” he added. “The industry faces constraints including tightness in the oilfield services supply chain, and there are unavoidable lags between a capex decision and first oil.”
With the Russia-Ukraine conflict ongoing, prices are expected to stay at high levels or rise even further. “We don’t know how long it is going to take,” said Alex Ngarambe, a resident in Kigali. “But we are going to feel this pinch for some time to come.”
“The longer it takes, the worse the situation is going to get,” Ngarambe said, adding that even the producers of oil are being affected by the conflict “because this is a global problem, a global crisis.”