When Vladimir Putin turned 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 might additional destabilise our already fraught relationship with China, our most essential buying and selling companion.
So Australia actually has purpose to consider Putin’s actions now.
Russia’s essential position within the world economic system
Measured by gross home product, Russia is the world’s eleventh greatest 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 world provider of pure sources equivalent to oil, gasoline, coal, metals and wheat.
Disruption of those provides might occur by Western sanctions on Russia, or by Russia reducing off provides – or each.
The intention in both state of affairs 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 similar.
Count on worldwide value rises
Russia can be a serious world provider of metals equivalent to aluminium and palladium, a uncommon and costly metallic utilized in catalytic converters to scale back poisonous exhaust emissions from automobiles and different autos.
Palladium has different essential makes use of too, together with in hydrogen gas expertise. Russia accounts for about 40% of world provide.
Sanctions banning Russian imports will naturally scale back world provide and improve the costs of those sources, 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 improve their output, or whether or not Russia can improve gross sales to different consumers not taking part 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 weak to produce shocks, resulting from its heavy reliance on energy imports, with 41% of the pure gasoline 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 gasoline imports come from Russia. This makes the German authorities’s choice to halt the Nord Stream 2 gasoline 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 can have main world financial implications.
The largest dangers for Australia
Within the very brief time period, there could also be some upsides for Australian exporters, equivalent to wheat farmers.
Russia is the world’s greatest wheat exporter and Ukraine, lengthy referred to as Europe’s bread basket, is the fifth (Australia is sixth).
The probably disruption to those provides could 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 gasoline by ship (as liquefied pure gasoline) somewhat than by pipelines, there are constraints on it growing exports within the close to time period.
So some Australian exporters who compete with Russian suppliers ought to profit from increased costs within the brief run. However these advantages will quickly be overrun by the antagonistic affect of world financial disruption.
The largest danger to Australia, although, is that if China decides to observe 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 could make issues harder for Taiwan. This is able to jeopardise Australia’s commerce with China.
What else could be executed?
All of the indicators are that Putin is ready to experience out sanctions, playing that he has sufficient reserves to robust them out or sufficient pals to undermine their effectiveness.
What else could be executed?
One possibility 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 sources.
Russia could wish to intimidate, however it doesn’t have the financial power of a united opposition, together with the US, European and Asia-Pacific nations.
There is probably not an instantaneous navy 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.