- By Chris Kremidas Courtney
When the COVID-19 pandemic began to engulf the world in 2020, my former boss, the NATO Secretary General, Jens Stoltenberg, warned the international community “to make sure that the health crisis doesn’t become a security crisis”. By this he meant the way in which disputes over the origins of the COVID-19 virus or unequal access to medical supplies and vaccines were disrupting supply chains and fanning geopolitical rivalries and tensions, particularly between the West and China. Yet today, Russia’s invasion of Ukraine is having precisely the opposite effect: it is turning a security crisis into a massive health and humanitarian crisis, not only for the 4.5mn Ukrainians displaced by the conflict thus far or the others being shelled into submission in several Ukrainian cities, but also for millions elsewhere in the world.
Already before the war, the prices of energy such as oil and gas, commodities such as raw materials and precious metals, and foodstuffs were rising at a rapid rate. The pandemic had severely disrupted global production and supply chains, particularly in containers, shipping costs and microprocessors. With gas prices quadrupling on spot markets, oil heading back towards $100 a barrel and a whole series of climate change-driven extreme weather events reducing crop yields in the United States, Canada, Brazil and Russia, inflation began to take off in the industrialised countries for the first time since the OPEC oil price hikes in 1974. Faced with consumer energy bills doubling in a matter of weeks and petrol prices rising by 30% at the pump, Western governments were already under mounting pressure to cushion the shock for their electorates. Fuel and energy subsidies had to be increased, adding to the already high levels of public debt resulting from governments’ extra funding for healthcare, businesses and employees placed on furlough due to the COVID-19 pandemic.
Now the draconian sanctions imposed on Russia — although fully justified by the gravity of Putin’s aggression — will exacerbate these supply bottlenecks. Banning or reducing Russian oil or gas imports, and dramatically reducing dependency on Russian energy over the long term, as the US, European Union and United Kingdom are proposing to do, will further increase prices for essential commodities and risk tipping Western economies into recession, or at least 1970s-style stagflation.
Russia is not only the source of 40% of the EU’s gas and 29% of its oil, it also provides half of the uranium that the US imports, one-tenth of the world’s aluminium and copper, one-fifth of battery grade nickel, and most of the global supply of palladium. Western companies heavily invested in the Russian market may also lose billions of dollars if Moscow nationalises these assets, as could be the case with the 50% of leased aircraft operated by Russian carriers, or the Russian holdings of big US investment banks, such as Goldman Sachs and JP Morgan. There is also the risk that Russia will default on its foreign currency denominated debt for the first time since 1918.
Ports such as Mariupol and Berdyansk are out of action due to Russian bombardments
No doubt over time Western countries will find substitutes and ‘work-arounds’ for former Russian commodity supplies. For instance, countries could ramp up domestic production of unconventional shale gas and oil, increase use of nuclear energy and renewables, and mine for precious metals and rare earths. The EU has been active too in tracking down alternative gas supplies in Algeria, Nigeria, Qatar, Norway and the US. It is building more connecting pipelines, such as between Poland and Norway, and liquefied natural gas (LNG) terminals. Yet getting global supply chains between Europe and North America or Asia back up and running, and diversifying the supplies of essential energy and commodities, will take time. Meanwhile, preventing inflation from becoming endemic and rising again to 1970s levels above 10%, wiping out savings and the value of bonds and investments along the way, will be a major headache for governments soon to face elections, such as in France in April and the US in November.
Yet an even larger headache looms than the spectre of public anger at lower living standards, higher costs for transport, food and household heating, as well as the prospect of fewer holidays and restaurant dinners. The fallout from the Russian invasion of Ukraine is being felt also in rapidly diminishing food stocks across the globe. As with commodities, this comes against the backdrop of an already deteriorating situation. The Food and Agriculture Organization (FAO) of the United Nations, based in Rome, estimates that 800mn people across the globe suffer from food insecurity. That is nearly one-tenth of the global population. Of this number, around 13mn are chronically under-nourished or on the brink of starvation. People in sub-Saharan Africa, the Middle East and Asia are especially exposed.
In February, even before Russian troops crossed the Ukrainian border, global food prices hit an all-time high, reflecting the impacts of COVID-19 on agricultural workers, and food processing and distribution chains. Wheat prices were 50% higher, barley was up by 31%, and rape seed and sunflower oil up by 60%. The UN World Food Programme launched urgent appeals for funding to buy grain, flour and other foodstuffs to respond to famine in Eastern Africa, the Tigray province of Ethiopia, Yemen and Afghanistan. The stresses from these price hikes were already becoming visible with demonstrators taking to the streets of Baghdad after sugar and wheat prices increased by 20%. In Libya, tensions were also evident after bread prices went up by 40% and sunflower oil by 25%. Closer to home, demonstrations against price hikes went on in Albania for three consecutive days. Already, supermarkets in Tuscany, Sardinia and Spain are limiting sunflower oil sales to two litres per customer — not too dramatic yet, but shades of rationing to come.
The Russian attack on Ukraine now threatens to turn this worsening food situation into a full-scale humanitarian crisis. This is because Ukraine and Russia together make up 30% of global grain exports. They provide 52% of sunflower oil, 14% of wheat, 19% of barley and 14% of corn. Since the invasion began, the Ukrainian government has banned exports of wheat, buckwheat, oats and millet given the mounting humanitarian crisis that it is facing at home with 2mn Ukrainians internally displaced. However, Ukraine is still allowing corn and sunflower oil to be shipped abroad. Yet its capacity to export these foodstuffs is increasingly constrained by Russia’s tightening grip on the Sea of Azov and Ukraine’s Black Sea coastline. Ports such as Mariupol and Berdyansk are out of action due to Russian bombardments, with threats to Odessa next.
Wheat prices have risen by a further 30% since Russia initiated hostilities
At the same time, 50 cargo ships have been marooned in Ukrainian ports, two have been struck by mines and a Bangladeshi seaman has been killed in the fighting. The International Maritime Organization (IMO) is trying to secure the safe departure of these ships, but the continuing Russian attacks will drive insurance cover sky high, where it is possible to obtain it at all. As the sanctions affect Russian shipping and access to foreign ports or the confiscation of Russian cargoes on the high seas, the major Western shipping companies are already terminating their business activities in Russia. Maersk and MSC, which together have one-third of the Russian container market, took that decision this past week.
In addition, Ukraine and Russia are the world’s primary source of fertiliser, and Belarus produces much of the potash that is a key ingredient of fertiliser. Even before Russia’s invasion, Lithuania blocked the rail transport of Belarusian potash across its territory, especially targeting the port of Klaipėda, to sanction the regime of President Lukashenko for its clampdown on political opposition inside the country. Russia is, for its part, the largest producer of urea, another key component of fertiliser, and whose price has increased threefold over the past 12 months. The fighting will also limit crop planting in the spring and autumn in Ukraine as farm workers flee or join the army, and as farms, farm equipment, irrigation channels and grain silos are destroyed. The consequences of reduced grain exports will be felt most immediately by those countries that import their grain principally from Ukraine and Russia, notably Egypt, Turkey, Lebanon, Tunisia, Yemen, Libya, Bangladesh and Pakistan. Iran also buys 60% of its wheat from Russia, one of the reasons why Moscow is so keen to keep its trade with Tehran out of the Western-imposed sanctions, even if this stipulation risks undermining the Iran nuclear deal, which Russia, China and the West are currently trying to revive through talks in Vienna. Altogether, the exports of grain from Ukraine and Russia via the Black Sea provide daily nutrition for 800mn people in the Middle East and North Africa. Cut-offs in supply can have knock-on effects throughout the food chain; for instance, in the case of Turkey, processors turn Ukrainian and Russian wheat into flour for much of the southern Mediterranean.
The shortfall on the international grain market caused by the war in Ukraine comes at a time when stocks elsewhere are low. Indeed, they are currently 31% below their five-year average. Canada has suffered a poor harvest after extreme heat and massive fires in the western provinces of the country over the summer. The US and Argentina have considered limiting exports to relieve pressures on the domestic market, and Russia has already entered contracts with China to sell its wheat surplus and build up a financial reserve against the Western sanctions. In a show of support for Moscow, the Chinese have magnanimously agreed to buy the Russian wheat even though the harvest this year has been blighted by the Dwarf Bunt fungus. Hungary and Turkey have also announced restrictions on food exports in recent days. Wheat prices have risen by a further 30% since Russia initiated hostilities, and traders estimate that they could rise by another third. Countries trying to buy wheat on the international tender market have had to withdraw their bids when confronted with too few offers at outlandish prices. This happened to Egypt, which cancelled its second bid a week ago.
All these factors have now induced the Director-General of the FAO, Qu Dongyu, to raise the alarm bell. He has pointed to food purchases taking up a greater share of income in both the developed and developing countries, thereby squeezing spending on other things such as heating, health and education. Farmers’ incomes will also be squeezed as they spend more on fertiliser and energy.
Where the will is there, and the media focus and pressure are unrelenting, so is the way
There is also the danger of more food nationalism as was evident during theCOVID-19 pandemic. Countries take care of their own populations first and foremost and are less generous towards others in poorer countries who are experiencing real hunger and famine. As with COVID-19 vaccines, there is the danger of panic buying and hoarding by both exporters and importers. The food riots that affected dozens of countries during the previous price spikes in 2007 and 2008 could quickly return.
There are never any quick fixes to global crises instigated by major conflicts, particularly when – like the one unfolding tragically in Ukraine – they are likely to go on for years. The conflict in Ukraine will add millions more to the total figure of global refugees and displaced people, which is already the highest ever at 65mn. Yet as the warning indicators begin to flash red, the global multilateral system that has pulled together so well to impose sanctions on Russia in recent days now needs to turn its attention — with equal resolve and urgency — to dealing with the consequences of those measures.
Preventing mass starvation is clearly the place to start. So fully funding the UN appeals for eastern Africa and Afghanistan would be that critical first step. Usefully, countries like the US, which do not recognise the Taliban government in Kabul and have frozen Afghanistan’s foreign reserves, have released emergency humanitarian funding and have allowed the World Bank to do the same. The Ukrainian refugees streaming into Poland, Romania, Moldova and elsewhere in Europe underscore that Western governments working with civil society, the private sector, NGOs and international relief organisations such as UNHCR can quickly mobilise a massive shelter and support network and share the burdens in both financial and resettlement terms.
Where the will is there, and the media focus and pressure are unrelenting, so is the way. We now need something similar for those farther away who are facing severe hunger. Of course, in some cases, such as Tigray province of Ethiopia or Yemen, the food aid is being blocked by conflict parties and for political reasons. So, a diplomatic effort will be as important as the provision of the aid itself.
The looming global food crisis makes Putin’s unprovoked and senseless war against Ukraine doubly tragic
At home, we will need to make difficult choices regarding the optimum use of scarcer foodstuffs. Wheat used for animal feed may need to be redirected to human consumption, which suggests that our diets will need to become progressively more vegetarian. The 148mn tonnes of corn used currently to produce ethanol fuel each year may well need to be re-appropriated as there is currently a 35mn tonne shortfall in global corn supplies. Just as we are seeking to ask foreign suppliers in the energy market, like the OPEC countries, to ramp up supplies to replace sanctioned Russian exports, or release some of their strategic oil reserves to relieve price pressures, so too will we need to quickly identify stopgaps in food solutions while we figure out a longer-term strategy. India has significant grain reserves. If it could be persuaded to release 10mn to 15mn tonnes on to the global market, that would provide some breathing space – although that would still be only one-third of Ukraine and Russia’s combined annual exports. Australia has had a bumper winter harvest this year, and if it can be helped to export the major part by arranging shipping and port access, that would help too. Yet these steps can only buy time while the EU, and the West more generally, decides on the shape of ‘food strategic autonomy’.
Autonomy will mean conserving more of the food we already produce and buy at the supermarket every week. One-third of it is thrown away. So, consumer education on intelligent use, healthy eating and conservation will have an important role to play. Higher prices will no doubt over time persuade many to reduce their consumption and seek maximum value for money. Strategic autonomy will also mean increasing domestic agricultural production and making farming more profitable and attractive. A country like the UK, where agriculture today makes up barely 2% of GDP and most foodstuffs are imported, will need to preserve its arable land in the face of a rapidly rising population and urban development. UK agriculture also suffered from Brexit after which many of the fruit pickers, abattoir operators and food processor staff from EU countries went back home. Interests will need to prevail over ideology or partisan politics here as the UK sees how the Ukrainian conflict is making it inseparable from Europe. Attention will also need to be given to things such as potash mines that can take years to open, as well as science and technology as we protect our crop production from disease and from the ravages induced by extreme heat, flooding and extreme weather events resulting from climate change.
The looming global food crisis makes Putin’s unprovoked and senseless war against Ukraine doubly tragic and catastrophic — not just for the Ukrainians, but for millions more facing hunger across the world. Ironically, many of the countries seeing their food insecurity grow by the day are countries in the Middle East and Africa that Putin has been courting of late. As the French foreign minister, Charles-Maurice de Talleyrand, famously said to Napoleon, it is despicable not only because it is a crime but, worse still, also a mistake. A mistake of cosmic consequences; and yet again another reason to isolate and oppose Russia until it has a government committed to maintaining the international order rather than ripping it to pieces.
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