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How Russia's invasion impacts Ukraine's major exports and adds to inflationary risks

Ukraine, a significant producer of uranium and titanium, also grows wheat. It is a big global supplier of these commodities. Russia's invasion of Ukraine could impact supply and prices, resulting in economic repercussions globally and inflationary risks.

February 25, 2022 / 09:15 AM IST
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Ukraine is a natural resource-rich country that has large reserves of minerals like uranium and titanium. As Europe's top producer of uranium and with vast deposits of titanium, Ukraine ranks high in the world for its key resources.

As the world’s ninth largest producer of uranium and sixth for titanium, the country is important to the global supply chain. Russia’s attack on Ukraine could have economic repercussions globally, giving rise to uncertainty.

The magnitude of the potential economic fallout is unclear, because the scale of the conflict is uncertain. As the conflict worsens, however, it could hit supply chains and the impact of all of this would be on the commodity market, sending inflation higher.

Natural uranium and low-enriched uranium can be used as fuel for nuclear power reactors, research reactors, military plutonium production and naval propulsion reactors. Highly enriched uranium can power naval propulsion, military plutonium, tritium production reactors, and act as feedstock for nuclear weapons production.

Titanium alloys are among the most common metals used in military applications for everything from aircraft parts to missile housings, armor plating, and naval ship and spacecraft construction. Several civilian applications also use titanium.

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Exports, including the above, contribute significantly to Ukraine's GDP.

Ukraine also has a significant acreage of arable land, growing wheat, barley and rye that European and other countries rely on. It’s also a big producer of corn. A prolonged conflict would create shortages of these commodities and increase consumer prices not just in the European Union but also many other nations. An invasion means the food supply chain is hit harder, which could affect food security. Wheat and corn prices were already soaring.

Wheat prices hit a record high in European trading today, after Russia launched an invasion of Ukraine. Ukraine and Russia are two of the world's biggest producers of wheat, which was trading at 344 euros ($384) a tonne on the Euronext platform.

Spiralling food inflation could worsen if the armed conflict continues. It is unclear at the moment as to how much would be the push in prices.

The increase in the price of multiple commodities will contribute to a surge in inflation. The oil sector is already jittery, and fuel prices are rising sharply. The Russia-Ukraine crisis is already affecting the world’s markets.

This conflict may hit India hard just when the economy is recovering from the pandemic.

From wheat to barley, and natural resources like uranium and titanium to oil, supply chains are set to be disrupted if the situation deteriorates. Apart from price rise and supply shortages, there is a risk to the outlook for growth due to the geopolitical situation. This may force the Reserve Bank of India to contemplate a phase of monetary tightening. If the slowdown were to become severe, then, interest rates could also go higher.



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first published: Feb 24, 2022 07:42 pm
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