Geo Political And Economic Impact On Asia Following The Ukraine War

The breakout of hostilities between Russia and Ukraine on the February 24^th, 2022 has resulted in various forms of crisis. With more than 4.4 million refugees leaving the country, a majority of population has evacuated Ukraine. The Russian president; Vladimir Putin has expressed his fierce agitation against Ukraine, accusing the country for its false statehood. He further castigates the Neo-Nazis of Ukraine for oppressing the ethnic minority of Russia. With Ukraine’s decision to join the NATO (North Atlantic Treaty Organization) Putin has remarked how the resolution has threatened the security of Russia and demands that Ukraine refrains from joining NATO as it would implying bringing Russia’s enemy at its doorstep.

Any war, howsoever limited has its impact on the society and derails the economic development of the countries involved. It has been estimated by the IMF that the GDP of Russia will fall by 7% in the year 2022. Moreover, Russia has been declined from taking a part in the International Finance System and is facing a partial prohibition from the part of European and American imports of aircraft parts to technological items. This has overall caused an inflation and depression in the country, while the economy of Russia has continued to shrink. While the war doesn’t concern Asia but still the continent feels the effect of the Russia-Ukraine war.

The geopolitical and economic crisis

Even though Asia’s exposure to the war is comparatively far less than any other countries but the global real GDP growth forecast has recorded a sudden drop in GDP from 3.9% to 3.4%.  The import and export of goods has been hampered creating shallow  trade linkages and deteriorating the economic sanctions. Thus, Asia would not see an exponential growth this year and rather the increment would be demarked following the war scenario of the nations. The global growth will be compromised which further shall deplete the exports of Asia. This sudden depletion shall hamper the domestic demand which was recovering from the pandemic. The cost of food and energy prices will rise, therefore increasing the household expenditure in each household. The financial and exchange rate strains of countries like Sri Lanka and Pakistan will be worsened due to the tightening of global monetary policy.

Geopolitically, several countries have decided to take their respective opinion of indulging or staying away from the war. While US allies have joined Russia but several governments like India has chosen a neural position. To make matters severe, China has extended its support towards Russia, increasing the tension between the relations it shares with the EU and US. These cold war like situation shall bring forth challenges in business and other firms.

The disruption in direct supply chain

As the war continues to rage, the import and export of goods between Asia and the war countries is low. Asia continues to face a disruption in the direct supply chain because of the vulnerable state of its trade centre. However, the import exposure is still retained because Russia accounts for the energy supply in Japan, China and South Korea.

Energy Chart: Asia’s reliance on imported energy exposes it to higher prices
(imports as a share of total energy supply of that category; %)

It’s is an assumption that probably the import of natural gas and oil from Russia will not be compromised, taking into account the war like situation. However, there still stays the risk that these countries might shift to an alternate source of supply. Moreover, South Asia and South East Asia primarily depends upon Ukraine and Russia for fertilizers. With war breaking in between these two countries, the agricultural industry of Asia will be in a deplorable state. The chipmakers of North East Asia will further face complications as it will have a shortage of rare gases which are used in the production of semi conductos.

Increase in commodity prices and concern for financial markets

Due to the less availability of energy sources and fertilizers which are used in the agricultural industry, the price of such commodities is bound to increase as Asia imports several goods from other countries. The conflict shall result in the search for an alternative supply source. Countries like Australia, Mongolia and Indonesia; the coal exporters, countries like Malaysia, Brunei; exporting crude oil and countries like Australia, New Guinea and Malaysia; exporting liquefied gas will be the chief energy producing countries to watch the show. With Russia’s lesser nickel supply, alternative markets of Indonesia and New Caledonia shall get a boost. Quite similarly, India and Australia shall fulfil the need for the global wheat demands. The emerging market currencies which were already facing a devaluation due to the surge in the interest rates of US shall face more depreciation. This could result from the direct impact of the capital outflows caused due to risk aversion at the financial markets of the region. An indirect concern could be the retaliation targeted against the countries that goes against Russia.

Russian tourists never to visit Asia

The tourism industry of Asia is a chief income, henceforth the air routes of Asia are still open for Russian airlines to facilitate trade linkages. However, with the economic disruption, the rouble depreciation and the international payment services been withdrawn, the Russians are less likely to travel. The year 2019 recorded 1.4million Russians visiting Asia, the highest till date. Taking into account the limitations on the outgoing Chinese tourists, the importance of Russian tourism was likely to have increased had not the conflict taken place.

Russian backed investments in Asia to face problems

Although, the lending footprints and investments of Russia in Asia is comparatively small and efforts have been taken previously to improve its presence under the “pivot to the East” policy but the limited projects are to face the impacts of war. The decreasing financial resources and international sanctions could lead to the divestment of the Russia backed projects. The investments involves the Rooppur nuclear power plant of Bangladesh and the energy infrastructure of Vietnam. Moreover, the investments of Asia was a major source of income for the banks and companies. The industries producing goods of Russia were meant for the Asian markets and hereby suggests that the closing down of such markets shall not have a severe impact on the European operations and the companies border.

Role of Asia in pressurising the economy of Russia

While, the US treaty allies have decided to join sanctions on the eve of the Russian invasion of Ukraine and this is bound to increase the stress as created by the Western sanctions. Just like the import of semi conductors and high end chips from Taiwan and South Korea being low shall create problems for the defence and space industries of Russia. China is the only Asian country that has significant economic leverage over Russia. 20% of the trade of Russia accounts for China. The country is the sole provider of about 70% of technological stuffs to Russia. China’s tendency to find way to maintain links while following the sanctions closely shall put the economy of Russia in a critical state. It is hoped that China will be the only country in Asia to expand its footprint over Russia for diplomatic and commercial reasons. It’s worthless on Russia’s end to stimulate the thought that the foreign capital currencies abandoning the market will be replaced by the Asian countries.

The geo politics of Asia after Russia Ukraine war

The conflict shall divert US focus on the Indo-Pacific. The region is expected to remain as a central centre of attention to US’s economic and security strategies taken that the conflict dies out soon. China is bound to secure from US benefits of near term strategies. However, China’s influence on regional concerns and the hastening of balancing actions shall be deepened by the crisis. With the conflict between Russia and Ukraine, the economic and political divergence between US and China shall put forth a challenge to all international firms and regional governments. The crisis shall help in shaping the Us and China’s approach in terms of their bilateral relations. This shall stimulate the growth of a complex geo political environment that shall see a rise in spending money on defence. Another immediate consequence of the crisis will be that the US shall get distracted from the Indo Pacific goals. According to the terms of the Indo Pacific strategy, US has promised in the late 2000s to bring US diplomatic and military resources in Asia. While the crisis shall certainly not reduce the military resources but neither shall it allow the expansion of the same. A live example of it is a meeting between US president Joe Biden and  ASEAN leaders which was supposed to take place in the end of March has been postponed. Moreover, the economic framework of Asia that was proposed by the US shall also remain affected this year.

China has some strategic gains

As US continues to remain distracted, China on the other hand continues to gain strategically. While the military of US in Asia shall not been affected as long as regional military bases conducts them which works independently. Unlike Europe they use naval assets. But, with Ukraine facing the wrath of Russia, plans like nuclear submarine technology bring transferred to Australia following the AUKUS pact shall face issues. In terms of economy, the prolong absence of US shall help China in strengthening the investment and trade rules of the particular region. As China’s influence continues to grow, few countries have decided to accept China as de facto regional hegemon just for securing benefits. However, economists have concluded that China’s gains are not clear cut. The Russian invasion of a neighbouring independent Ukraine shall foster concerns of many small countries of Asia as they fear China’s expansion. This negetively might result in countries building stronger ties with US to defend from China. The countries which have so long been neutral might lean towards US. Like Singapore which was critical of Russia’s invasions has joined hands with US as a retaliation.

The complex geopolitical environment as a result of the ongoing war

The Russian-Ukraine war might shrink the tendency of US tonact like global police man. On the other hand the opportunist countries might see this as a chance to expand their agendas. The most scary amongst them is North Korea’s amalgamation of nuclear weapon and it’s strained ties that follows the election of an aggressive president of South Korea. Countries sharing territorial conflicts like India-Pakistan might become even more vindictive. It could also influence terrorism. Economically, such a conflict might also evaporate the need to strengthen defence and security of every country thereby reducing the budget meant for economic and social developments. Even before the invasion of Ukraine we have witnessed the growing anguish between US and China and the relationship might even be threatened taking into account the recent turn of events. This further shall break the unity of regional bodies and create chaos in the international firms and several markets.  

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