For the past month, the world has focused its attentions to the issue in Ukraine. Indeed, it’s a very complex matter and one where the outcome could very well affect the entire globe in one way or another. At the present time, it appears that Russia is regaining Crimea for the first time since the era of the Soviet Union, but this might not seem to be the concern for any American, Canadian or Briton.
Perhaps not, but it will hurt your wallet.
Although the Ukrainian people maintain a very low standard of living, the Eastern European country produces a lot of items that are consumed daily in the Western world. Whether it’s food, oil or metal, the Ukrainian crisis plays an important factor in how much you pay for these goods at the store.
Here are four ways the crisis in Ukraine could cost you a lot in the end.
Russia maintains one of the largest energy supplies in the world today and is a big exporter of its resources. Two years ago, 84 percent of Russia’s oil exports went to the EU, while 80 percent of the country’s natural gas exports also went to the EU.
When news broke last week that Ukraine was entering Crimea, Brent crude oil prices shot up two percent. If you own a vehicle then any spike in the price of oil will affect you, especially at a time when gas prices are already quite high and the amount of available cash in households across the U.S. remains low.
At the time of this writing, Brent crude oil is trading close to $110. If Russia flexes its energy power and uses it as a tool for its foreign policy – it has done so before – then drivers in Canada, the U.S. and the European Union can expect to pay more for gas at the pump. This might be circumvented if the international community refrains from imposing dire sanctions.
Corn & Wheat
It might be surprising to many that Ukraine is the globe’s third-largest exporter of corn and the sixth-largest exporter of wheat.
Much of its daily production of wheat transpires in the eastern provinces of Russia, which are opposed to the newly established Ukrainian government and much in favor of seceding and joining Russia. When it comes to corn, meanwhile, it exits the country using the ports of Odessa, Nikolaev and Yuzhny, regions that are deep into the conflict.
Of course, the U.S. doesn’t rely so much on Ukrainian food exports, but if those in Ukraine fail at attaining these commodity products then they will vie for their grain with buyers in the U.S. and thus consumers will feel the effects of higher prices for bread, cereal and any other food product that contains wheat as an important ingredient.
Ukraine is renowned for its abundant supply of mineral deposits, such as mercury, nickel, iron ore and titanium. To the rest of the world, Ukraine is one of the most important mineral producing countries. It also maintains an immense metal industry that produces cast iron, steel and pipes. It is the 10-largest steel producer today.
If anything happens whereby Ukraine ceases to produce these elements then production elsewhere in the world could be on standby or it could also equal higher steel, nickel and mercury prices, something that might hinder economic growth in countries with an intense manufacturing base.
Several countries have already agreed in principle of imposing economic sanctions and asset freezes against Russia. In addition, the Obama administration is mulling visa bans of individual Russians and suspension of military cooperation and sales.
Russian President Vladimir Putin and other Kremlin officials have warned of deep consequences if such a policy decision is made. This could hurt American and European economies if Putin decides to retaliate in any way possible. One of the costs could be in relation to the greenback.
According to a report from Reuters, a Kremlin aide was quoted last week as saying that if sanctions are applied on Russia then Moscow could drop the U.S. dollar as a reserve currency and decline to pay off any loans to U.S. financial institutions.
“In the instance of sanctions being applied to stated institutions, we will have to declare the impossibility of returning those loans which were given to Russian institutions by U.S. banks,” said Sergei Glazyev, a Russian policy advisor. “We will have to move into other currencies, create our own settlement system."
Furthermore, businesses across the globe could have difficulty accessing certain markets and resources in the Eastern European region. This could very well lead to higher prices for consumers everywhere.
Are you concerned over the situation in Ukraine? Share your thoughts, suggestions and ideas in the comment section.
Ukrainian protest via Flickr/Creative Commons.