The conflict in Ukraine is going on for more than a month now, so I thought there was enough time to make certain preliminary assumptions on how the situation would go on from now on.
Globalization
As far as I’m concerned, globalization is essentially over and the world is splitting into a few pan-regions. We would see different monetary zones, different technological zones, different industrial zones and so on.
This also means that a lot of ideas directly associated with globalization are over as well. One of them is ESG and specifically – the green economy. It’s unsustainable if you have Russia, China, and a few other economies disregarding it.
Other pillars, like governance, are likely to go through fragmentation depending on the region.
Although English law and its derivatives (US law, Singapore law etc.) would likely still be dominant in the contracts, arbitration would shift out of US/Europe to Hong Kong and other places of arbitration.
Dollar also seems to lose the status of the reserve currency quickly.
Food crisis
Russian and Ukraine hold a significant portion of the energy market (relevant mostly for EU), grain market (relevant globally), and fertilizer market (relevant globally). What that means in practical terms is almost certain food shortages and high prices on food.
This is a hard hit for middle class as the percentage of income spent for food would soar. As Russia is a producer of all of these, prices would grow, but it would remain largely unaffected by this factor.
Europe industry becoming less competitive
Steep increase of prices of energy and energy shortages in Europe would mean that European industry would likely struggle to compete globally and capitals would run to USA (apparently this is already happening). This would become increasingly obvious by summer.
Electronics
Russia and Ukraine are critical sources of neon gas and palladium that are used to produce semiconductor chips, so sanctions on supplying microelectronics to Russia are not sustainable long-term.
Obvious counter-sanction would be to ban neon and palladium export.
Russia and Asian market
Russia is sanctioned by Europe, Northern America and few other countries.
Neither India, nor China have joined the sanctions, overwhelming majority of Asian, African or South American countries have not joined the sanction either.
There was a long-term trend of center of world economic activities shifting to Asia. This would intensify.
Especially if Asian businesses would get resources from Russia normally, while EU/US would have to pay extra to find replacements or intermediaries.
Timeline
I assume economic turmoil in Russia would last around two more months. By summer logistics would be adjusted and major shocks would pass. During summer economic shock would pass over to Europe, the the end of the year to the USA. Each of these stages presents both challenges as well as significant opportunities for businesses in APAC.
Please let me know what you think. Do you agree? Do you disagree?
