The ongoing tensions between Russia and Ukraine could severely affect Pakistan’s economy. Although Pakistan’s imports or exports are not heavily dependent on either Ukraine or Russia, the economy is still at risk of being affected by rising oil prices.
After Russia invaded Ukraine, oil prices surged to $102 per barrel and can even cross the $110 or $115 per barrel threshold. When global oil prices rise, it will certainly increase the import bill which will affect payments. The rupee will be under further pressure due to imbalance in external payments
The high oil prices in the global market will also instability in petroleum prices in Pakistan which will lead to further inflation. The rising cost of fuel will put a burden on pockets of commuters. It will increase the cost of production and eventually increase the prices of daily items.
The Russia-Ukraine conflict has heightened the risk a new wave of inflation due to rising oil prices.
There are also fears that the supply chain will be affected as sea routes will be disrupted. This will affect cargo rates and the logistics industry will be one of the worst affected.
The coronavirus pandemic severely affected trade activities worldwide as restrictions kept large ships anchored and containers were lying idle in yards. This hampered global trade and now the new conflict will once again disrupt economic activity.
Pakistan’s growth rate is heavily dependent on raw materials. If global trade activities are affected, our industries could face difficulties and exports may dwindle. Pakistan needs more ships and containers but the closure of waterways and shipping lanes will be a huge setback for exports.
Rising oil prices will multiply Pakistan’s import bill which will put pressure on our currency. The local market will also face increased production costs, leading to a significant increase in inflation. The disruption in global supply chain will be detrimental to Pakistan’s economy.
Russia is currently one of the world’s largest oil and gas supplier, while Ukraine provides wheat to many countries. Pakistan had also recently imported wheat from Ukraine. If the Russia-Ukraine conflict flares up even further, then several regional countries in Europe will face disruption in oil, gas and agricultural commodities.
World powers should try to resolve the Russia-Ukraine conflict as soon as possible. This conflict will affect not only Russia and Ukraine but potentially the whole world and we will need several years to recover from the loss.
