Russia’s Invasion: Fallout on the Philippines

In our past three columns, we looked at the context behind Russia’s invasion of Ukraine from three angles. First, we examined Ukraine’s position as part of the “buffer zone” along Russia’s vulnerable Western front. Second, we looked Russia’s attempts to enter the Black Sea and how Ukraine and Crimea are crucial to this goal. Third- and finally- we took a peek inside President Vladimir Putin’s mind and how he sees Ukraine in the grand scheme of restoring Russia as a global superpower.

But why should the Philippines care about this conflict? Ukraine is halfway around the world. To answer this question, we should carefully examine our country’s exposure to the conflict. Over at ING Think– the research arm of the ING Group– Mr. Robert Carnell, the Regional Head of Research for the Asia-Pacific, has an article entitled “The Asian economies most exposed to the Russia-Ukraine conflict”. Let’s take a look at what he has to say.

Mr. Carnell rates Asia’s exposure to the conflict based on three criteria:  direct trade channels, energy dependence, and inflation. Of these three, Carnell notes that neither Ukraine nor Russia are major trade partners of the Philippines. The primary exposure will be on energy dependence and on inflation.

With regard to energy dependence, the Philippines is a net importer of crude oil and finished products. While most of our oil is imported from the Middle East, all fuel prices are expected to be affected by the Russia-Ukraine conflict. This is due to the big oil companies “self-sanctioning” against Russia, e.g. they are refusing to buy oil from Russia. As a result, supply will be tight and overall oil prices are expected to rise.

For inflation, Mr. Carnell measured the share of food and energy in the inflation “baskets” of Asian countries. We are third overall, as more than 40% of our inflation basket is occupied by fuel and oil costs. In the immediate term, oil will weigh more, as seen in the huge increases in retail pump prices. However, rising wheat prices may also bump up demand for rice, which may make imported rice more expensive.

But overall, the Philippines is not as heavily exposed to the Ukraine-Russia crisis. While food, fuel, and electricity prices will jump, our minimal level of trade with both countries will prevent a bloodbath.

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