The Russia-Ukraine crisis could bring global impact and spillover effects

Heightened tensions between Russia and Ukraine raised questions of whether this crisis could have broader global and Asia implications. We consider the potential macroeconomic impact of a broader Russia-Ukraine conflict and its effect on Asia-Pacific economies.

In our view, the border tensions between Russia and Ukraine could have substantial implications that have yet to be priced in by the markets. 

Russia’s role in the physical markets 

Russia is the world’s leading exporter of natural gas (17.1% of global production) and the second-largest exporter of crude oil (12.1%). For context, Saudi Arabia accounts for 12.5% of the crude market.¹  

Russia and Ukraine are also significant agricultural producers: Their combined wheat, barley, and maize exports represent 21% of the global total, and together they supply 60% of the world’s sunflower oils. Russia and Belarus also account for approximately 20% of total fertilizer exports, which is vital for global food production.²

Meanwhile, Russia is one of the world’s largest producers of critical metals. It’s the biggest exporter of palladium (20.7% of total volume) and ranks second after Chile in terms of refined copper (7.1%). The country also holds the third position for nickel (11.2%) and aluminum (9.0%).³

The global macroeconomic impact of escalation 

Potential punitive sanctions on Russia that disrupt the supply of such goods would have an important impact on the global economy, given the virtually inelastic demand for these strategically important resources. 

Moreover, demand for these specific commodities has historically surged in times of conflict. This could be problematic for stretched global supply chains and trigger upward price pressure in an already painfully inflationary environment. In such a scenario, it would act as an additional stagflationary shock (lower growth but higher inflation) and, in this scenario, would hurt net importers of these commodities the most.  

Notably, Asia-Pacific is the world’s largest net food and energy importer. However, we continue to stress that the region isn’t monolithic, so a spike in food and energy prices would have an uneven impact across the region. For net importers, such a development would translate into a negative terms-of-trade (the ratio of export prices to import prices) shock and the subsequent consequences for economic growth, exacerbated by weak domestic demand. The converse would be true for net exporters of food and energy. The largest net exporters of food and energy (and therefore least vulnerable), in our view, are New Zealand, Malaysia, Vietnam, Australia, and Indonesia.

That said, there are also larger spillover effects to consider:

  1. Rising food and energy prices would lead to higher inflation and inflation expectations. Food inflation could be particularly impactful due to the greater weighting of food-related items in Asian Consumer Price Index (CPI) baskets. Economies with the lowest net food and energy CPI basket weights and, therefore, least likely to be vulnerable in such a situation are Hong Kong, Australia, South Korea, and mainland China.
  2. We expect export momentum to slow as global consumption patterns normalize amid reduced inventories. Without strong export growth to materially offset rising food and energy import prices, some economies could be subject to worsening current account balances. Economies least reliant on foreign demand are the Philippines, Hong Kong, India, South Korea, and Thailand.
  3. Fiscal positions could deteriorate if governments increase subsidies to help contain inflation and ease the burden on low-income households. If this were to happen, it would take place at a time when budgets have weakened after two years of emergency pandemic responses. Markets with the strongest fiscal positions are Singapore, Vietnam, Taiwan, Thailand, and the Philippines.
  4. The risk of a liquidity shock arising from a combination of demand shock, supply shock, and a flight to safety would expose vulnerable economies with high debt levels to either a domestic credit or external funding shock. Economies with the most robust debt positions (low private sector and external leverage, as well as low debt-servicing costs) are Indonesia, the Philippines, New Zealand, and India.
  5. Having adequate policy room to respond to such a macro challenge is essential should a conflict materialize. Policymakers from net food and energy importing economies face a dilemma: They could raise interest rates at the cost of even weaker economic growth or choose to tolerate higher headline inflation at the risk of capital outflows, currency depreciation, and even higher inflation. Last, there's the option of imposing capital controls, but this could risk sovereign credit rating downgrades, reduced capital inflows, and lower long-term potential growth. In contrast, we believe large net oil-exporting economies will be better placed in such a situation. 

Higher food and energy prices should improve current account and fiscal positions, capital inflows, local currency performance, and sovereign credit ratings. To the extent that currencies appreciate, or governments with strong fiscal positions opt to subsidize retail food or energy prices, the inflationary impact would generally likely be more muted relative to net oil-importing economies.  

A screen for the least vulnerable to potential shocks

Singapore, Malaysia, the United States, Australia, and New Zealand should be the biggest beneficiaries of any surge in food and energy prices. Indonesia, the Philippines, New Zealand, and India appear least exposed to a potential liquidity shock. Balancing the simultaneous impact from these two shocks, our analysis suggests Malaysia, New Zealand, the United States, Australia, Vietnam, and Taiwan will be the relative macro-outperformers among the economies we follow.


1 B.P. Statistical Review of World Energy 2021,, July 8, 2021. 2 OECD-FAO Agricultural Outlook 2021-2030,, July 5, 2021. 3 World Bank, Federal State Statistics Service (Rosstat), Macrobond, February 11, 2021. 

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