Global oil and liquified natural gas (LNG) costs are likely to determine a sharp rise in the event of a Russia-Ukraine conflict, that would have negative implications for net energy importers, Moody’s Investors Service said on Wednesday.
Moody’s Investors Service Managing Director Michael Taylor said trade effects are possible to arise from import diversion and diversification, although there could be opportunities for commodities producers in Central Asia to increase provide to China. Supply chain bottlenecks can also be aggravated, adding to inflation pressures in the region.
Tensions are escalating between Ukraine and Russia in recent weeks, and on Monday Moscow determined to recognize 2 separatist regions of eastern Ukraine as freelance and deployed Russian troops there.
“The global worth of oil and liquified natural gas (LNG) is likely to rise sharply within the event of a conflict, which can be positive for the comparatively few exporters in the Asia Pacific region and negative for the substantially larger variety of web energy importers.
“However, a mitigating factor is that many Asian economies have long-term supply contracts in place for LNG, that will limit the impact of fluctuations within the spot value,” Mr. Taylor said.
International crude oil benchmark Brent neared the $100 per barrel on Tuesday amid the rising threat of invasion in Ukraine and fears of sanctions on Russia, the most important exporter of natural gas and second-largest oil exporter.
India imports about 85% of its crude oil want and about 0.5 of its natural gas requirement. While the imported crude oil has become fuels like petrol and diesel, gas is employed as CNG in automobiles and fuel in factories.
In a very statement, Moody’s said its rated issuers in the Asia-Pacific have restricted direct exposure to Russian or Ukrainian entities. Nonetheless, issuers in APAC might not be proof against the second-round effects of a conflict. Among the possible transmission, channels are commodities costs, trade effects, and monetary market disruption.
“Money market effects can have the largest close to-term impact: as an example, if a conflict provides rise to widespread risk aversion, funding conditions for prime yield issuers, some of which are already experiencing constrained access to finance due to alternative factors, can deteriorate additional,” Moody’s said.