Why The Unrest In Russia Could Be Problematic For The World Economy?

The world economy is in a vulnerable position as a result of the epidemic, the conflict in Ukraine, and the inflation shock that followed. Another unpleasant surprise is the very last thing it needs right now.

This past weekend, disgruntled Russian mercenaries advanced on Moscow, prompting President Vladimir Putin to issue a stern warning that the nation was on the verge of a “civil war” a la 1917.

The armed uprising has been put down for the time being, but the biggest threat to Putin’s rule in 23 years might still lead to unrest and change.

According to Yale professor and Russian specialist Jeffrey Sonnenfeld, “Putin has total chaos right now.” Despite Western sanctions imposed after its full-scale invasion of Ukraine in February 2022, Russia is still one of the largest energy suppliers to global markets, including China and India. Russia has fallen out of the top 10 economies in the world, with a gross domestic product roughly the size of Australia’s.

A fellow major oil producer, Qatar, expressed “great concern” about the state of affairs in Russia on Saturday.

In response to news of the uprising, Qatar’s foreign ministry declared: “The escalation of the situation in Russia and Ukraine will have negative effects on international security and peace, as well as on food and energy supplies.”

China and India would be forced to compete with Western nations for supply from other sources if there were any significant loss of Russian energy. Supply and demand may be thrown off if political unrest inhibits the export of other goods like cereals or fertilizer. And it may result in price increases for everyone.

Other analysts agreed with Richard Bronze, head of geopolitics and co-founder of Energy Aspects, that markets must now determine how much prices should climb to reflect the increased risk to Russian supplies.

Matt Smith, the chief Americas oil analyst at Kpler, stated that “this apparent coup attempt only brings uncertainty, which could be reflected through into higher prices.” Given the potential for supply disruptions — and the fear of them — that weren’t a worry before the weekend, the instability and uncertainty of recent days may have supported prices.

A “Critical Junction”

“The last leg of the journey to restore price stability will be the hardest,” the Bank for International Settlements, the bank for central banks, stated in its annual report on Sunday.

It stated that there was a “material risk” that “an inflation psychology will take hold,” which would result in what economists refer to as a wage-price spiral.

“The state of the world economy is critical. Agustin Carstens, the general manager, stated at the BIS annual general meeting in Basel that “stern challenges must be addressed.”

US crude prices have fallen by over 14% so far this year to just under $70 per barrel, as there are indications that the world’s energy demand may drop this year as economies stagnate. (It reached a high of $120 last year.) Brent crude, the global standard, is also down significantly.

But Western politicians and Russia’s most prominent clients in Asia will be closely monitoring anything that could endanger its ability to continue supplying the world’s energy markets.

Since we’re already entering into a period of the year where global demand for oil is anticipated to dramatically outpace supply, Bronze added, “If anything… disrupts those flows, then that would definitely be an upside risk for oil prices.”