Since Russia’s invasion of Ukraine on February 24, 2022, international observers predicted that harsh sanctions on the Vladimir Putin administration could propel oil prices to a record-breaking US$200 a barrel, US$53 higher than it ever was on July 11, 2008. Early on, oil-producing nations such as Guyana were predicted to be among the few to benefit the most from the rising oil prices. To understand the extent of this upside or benefit, one ought to consider that the government in budget 2022 had originally projected to make almost US$1B based on a US$70.4 estimate. Oil prices have almost doubled since the war.
Despite the increase in oil prices and its obvious benefit to the NRF balance sheet, Guyanese are beginning to understand just how far-reaching are the implications of the sanctions imposed by the USA and others on Russia.
Already, the economic sting of the Russia-Ukraine tragedy has been felt by the fingertips of many Guyanese at the pumps with higher electricity bills being mulled by the Guyana Power and Light (GPL). But the next and perhaps most concerning impact pertains to food security.
Globally, Russia and Ukraine account for a third of all wheat exports. This translates to 59 million metric tonnes. It is also responsible for a fifth of the global corn trade and half of the world’s sunflower products, translating to 80% of global sunflower oil production (USDA).
In light of this, the price of wheat has jumped to its highest levels since 2012 and analysts have warned that war would not only impact grain production but could double global wheat prices. This means that the cost of items such as flour, bread, noodles, biscuits and cereal would increase considerably.
In fact, the National Milling Company of Guyana Inc. (NAMILCO) just last week raised flour prices by 15 percent on account of skyrocketing wheat costs and there are concerns that other imported food items such as broccoli and carrots are set to raise on account of increased freight costs.
To date, the government has not revealed the details of how it intends to insulate the economy from the increasing economic burden. Be that as it may, the administration has assured that measures are being reviewed.
Specifically, Vice President Dr. Bharrat Jagdeo assured that the government is closely monitoring the impacts on food and fuel.
Dr. Jagdeo said, “We are concerned about the potential impact on our country from the Ukraine crisis. We already had a spike in inflation owing to COVID-19 and its impact on the supply chain and now this will just magnify that impact, so the government took some steps to try to mitigate the pass-through of inflation to the consumers.”
He added, “It also set aside $5B in budget 2022 to deal with the cost-of-living issues which has not been spent as yet but will be spent as was announced at the budget time after consultation with broad groups of people. So, we will pursue those consultations.”
The former Head of State further stated, “Government is currently reviewing what else could be done to soften the impact of the increase in oil prices. Now we had already adjusted the 50 percent Excise Tax down to 10 percent and so there is still that 10 percent cushion which could potentially be removed but given the scale of increase that will still see some impact at the pumps.”
Dr. Jagdeo said the government is also trying to look at GPL and impacts on water bills since those prices tend to move along with the price of the acquisition of fuel. “So, we are looking to keep those prices constant given their impact on business and on consumers. So, the situation is currently under review to see how best we could mitigate the impact.”
As regards food security fears, OilNOW shared with the VP that Canada for example is bracing for the implications of a major global food crisis in light of the war. He was keen to note however that Guyana is not behind the proverbial eight ball on this front.
Dr. Jagdeo said, “Food security is vital for Guyana, the good thing is that we are a net food exporter, and we produce quite a lot of what we consume so from the perspective of availability of food we would not be as stressed as other countries. However, there will be an impact on pricing because Russia and Ukraine combined are responsible for about 30 percent or one-third of the world’s supply of wheat so if that is disrupted then you can anticipate there will be higher prices for wheat which will pass through to everything made from it.”
Dr. Jagdeo also noted that Russia and Ukraine are also major suppliers of other commodities, so it is not just energy disruption and increase in prices but also food supply disruptions that have to no doubt be monitored. “As I said, we are in a bit more fortunate position than others in terms of availability of food but prices may go up, but we have our finger on the pulse and we are looking to see if that $5B cushion can be utilized in a manner that insulates as far as possible, our people from the full impact,” the Vice President concluded on this front.
From the perspective of inputs, Russia is one of the world’s largest exporters of fertilizer and related raw materials, including urea, nitrogen (N), phosphorus (P) and potassium (K) (NPKs), ammonia, Urea Ammonium Nitrate (UAN) and ammonium nitrate.
In light of the sanctions imposed by global heavyweights such as the USA, these critical inputs would have to be sourced elsewhere, thereby driving up costs for Guyana and other Caribbean nations.
Thus far, international organizations such as the International Monetary Fund have warned that if the war drags on for too long, the economy of Ukraine would collapse. And while there is still a degree of uncertainty about the extent to which the war will affect global growth projections, there is consensus that the conflict has brought the world on the brink of a food crisis.
