Nouriel Roubini sees interdependencies in the global macroeconomy very clearly. He is often well ahead of the pack in identifying key vulnerabilities. Today he is warning the conflict in Ukraine will lead to global stagflation from a sharp acceleration of price rises for minerals, energy, and food. His analysis is confirmed by Fitch Ratings 20/20 Vision: inflation will be higher, widespread and persistent. Central banks, already behind the curve on inflation, will be squeezed by the desire to support markets and deficits with more QE and the risk of embedding higher inflationary expectations.
Together Russia and Ukraine provide 29 percent of global wheat exports, 80 percent of sunflower oil, and 19 percent of maize. Farmers globally rely on Russia and Ukraine for essential fertiliser components such as sulphur, ammonium nitrate, urea, potash, and phosphates. Russia put an embargo on some exports of fertiliser in December and ammonium nitrate this month. The largest Russian markets for these critical agricultural inputs are US, EU, and Brazil.
Infographic from Al Jazeera
We are already seeing the implications in the headlines. Egypt abandoned its intent to purchase wheat yesterday when faced with record high prices. Egypt is the world's largest importer of wheat. Today Egypt raised the cost of transiting the Suez Canal by 10 percent, which will feed through to shipping costs and supply chains. And we are only in week 1 of the conflict.
American exceptionalism leads them to think they are exempt from sanctions blowback. Even after oil prices exceeded USD 106 a barrel, St Louis Federal Reserve President James Bullard said that because the US has few direct links to Ukraine or Russia the economic impact of the war will be minimal. The US received 21 percent of its gasoline imports from Russia in 2021, more than any other country. Canada received 17 percent. If US crops fail from lack of fertiliser this spring and summer, Fed forecasting models may need recalibrating.
If you're minded to look out for the Four Horsemen of the Apocalypse, we've had Plague (Covid-19), War (Ukraine-Russia), and now Famine may follow.