Russia is one of the world’s superpowers and the 11th largest country in terms of GDP. In terms of gas production, the country was the second-largest in the world in 2021, with 17-percent of the world’s total output and 12 percent of the world’s total oil production, the third. Russia exports coal, gold, fertilizers, and other metals in addition to gas and oil. Although Russian forces launched a full-scale attack on Ukraine on the 24th of February, Russia has been preparing for the attack on Ukraine for months. Russian military forces, tanks, artillery, and other military movements were seen very close to the Ukrainian border in the satellite image. Countries in the western bloc, including the USA, UK, Germany & European Union, threatened Russia with various sanctions.
However, despite all these threats, Russia invaded Ukraine, and the United States and its Western allies have imposed a number of economic sanctions on Russia. Alongside the sanctions from the world’s numerous countries, SWIFT, the world’s cross-border payment network, also banned seven banks, including the Central Bank of Russia, disrupting the country’s banking and international trade.
The war has affected global oil and gas prices, as well as wheat, corn, sunflower, and various precious metals. The global impact of the Russia-Ukraine war is also being felt in Bangladesh. Suppose the dispute between Ukraine and Russia continues for a long time and spreads across Europe. In that case, the country’s garment industry could be threatened as 64% of the country’s garment exports, and 58% of the total exports are destined for the European market.
President Vladimir Putin of Russia blamed Ukraine’s membership in NATO for Russia’s invasion of Ukraine. Russia has long opposed Ukraine’s accession to the European Union and NATO. In 2014, Ukraine’s then-president Viktor Yanukovych was ousted by the public over his pro-Russian stance, which prompted Russia to occupy Crimea part of Ukraine as a sign of power. Since then, Ukraine has been trying to join the European Union and NATO to preserve its sovereignty. Russia and Ukraine, meanwhile, have been at loggerheads over claims that NATO’s military alliance has moved closer to Russia’s borders.
Following Russia’s invasion of Ukraine, Western nations have imposed a number of sanctions on Russia. According to a BBC report, the USA and Western countries have frozen almost half of Russia’s central bank’s $630 billion foreign currency reserves, leaving the Russian currency, the ruble, devalued against the US dollar. As a result, Russia’s inflation rate has risen by 14-percent.
Meanwhile, several Russian commercial banks were placed on the ban list besides Russia’s central bank. The export of anything that has any military use for Russia was banned, such as cars and tech products with chips that were manufactured using western patents or machinery. There were bans on exporting luxury products to Russia, and various military installations, airlines, and assets of Russian oligarchs in the western countries were frozen as well.
However, sanctions against the Central Bank of Russia and several commercial banks and the ban on transactions using the SWIFT network were the most impactful. In addition to the state powers, private corporations worldwide have also announced the closure of their activities and services in Russia. These private corporations include consumer payment network providers like Visa, Mastercard, Amex, as well as car manufacturers like Renault, Volvo, Daimler Truck, Toyota, General Motors, smartphone makers like Nokia, Apple, Samsung, tech companies like Microsoft, Google, Netflix, TikTok, Spotify and many more organizations including global restaurant chain McDonald’s, Yum Brands, Starbuck.
As a result, the Russian currency lost value against the dollar, and inflation rose. At present, the exchange rate is 85 rubles per dollar, but on March 7, it was 151 rubles per 1 dollar. Russia had a foreign exchange reserve valued at 640 billion, mainly in dollars, euros, yuan, and gold. In a March 13, 2022, interview on Russian state television, Russia’s finance minister said that Russia’s 300 billion foreign reserves had been frozen since the Western sanctions, which is one of the reasons behind the devaluation of the ruble and rising inflation. The country’s central bank has raised interest rates to 20 percent to overcome this. As a result of the war, the price of unrefined oil in the world market has reached its highest level in the last 14 years. In addition, the retail price of gas has almost doubled. Its impact is being felt in all the economies of the world, big and small.
The impact of the Russia-Ukraine conflict is also being felt in Bangladesh. Russia and Ukraine have trade and import trade relations with Bangladesh. Due to the closure of Swift in Russia, many payments were blocked, and shipping with Russia was reduced, so new orders were canceled. Besides, Russia is directly involved in Bangladesh’s first nuclear power plant mega project. Russia is providing technical assistance as well as financial assistance for this project. Sanctions on SWIFT and Russia’s central bank have raised concerns about the loan. But will the conflict between Russia and Ukraine have any impact on Bangladesh’s economy in the long run?
Economic Impact on Bangladesh
One of the largest export regions of Bangladesh is Europe. Fifty-eight percent of Bangladesh’s total exports are exported to the European Union region countries. In comparison, the total export income of Bangladesh from Russia in the fiscal year 2019-20 is 1.72 percent. RMG products accounted for more than 91-percent of Bangladesh’s exports to Russia.
Over the past decade, Bangladesh’s exports to Russia have increased every year. In the 2011-12 fiscal year, Bangladesh’s exports to Russia amounted to more than $133 million (133.25), which a decade later stood at more than $665 million (665.32).
On the other hand, in the same fiscal year, Bangladesh’s exports to Ukraine exceeded $26 million (26.85). Of which about 44-percent (43.72) are RMG products and more than 25 percent (25.51%) are vegetables, and more than 21-percent (21.45) are footwear products.
Collectively, the export earnings of Bangladesh from Russia and Ukraine are less than 2% of the total export earnings of Bangladesh. If the conflict between Russia and Ukraine continues, Bangladesh may be deprived of these export earnings. However, the Bangladesh Consulate in Russia proposed a Barter System, Government-to-Government Initiative to continue imports and exports with Russia.
Russia has 77 billion, or 13 percent of the country’s total foreign reserves, in Chinese currency yuan. The central bank of the two countries has a multibillion-dollar currency swap agreement that will help keep trade between the two countries afloat.
Meanwhile, Bangladesh also has several bilateral financial and trading agreements with China. If Russia wants to import from Bangladesh, then trade between Bangladesh and Russia can be continued using the agreements with China. However, the United States has already warned China not to allow Russia to bypass the economic sanctions imposed by the United States and its western allies.
In this case, if Russia prolongs its invasion of Ukraine, then the idea of exporting to Russia should be eliminated. However, the biggest problem will be if Russia extends its invasion of Ukraine and if NATO and European countries also engage in direct conflict with Russia to protect Ukraine. In that case, the Russia-Ukraine war could spread to Europe. Whatever the duration of the war, it will directly impact Bangladesh because 58% of the total export earnings of Bangladesh come from the countries of the European Union.
According to the Export Promotion Bureau, various goods worth $466.7 million were imported from Russia to Bangladesh in 2020-21. Bangladesh mainly imports wheat, edible oil, fertilizers and chemicals, steel or aluminum, and many more from Russia. Russia and Ukraine export 29 percent of the world’s wheat, 19 percent of corn, and 80 percent of sunflower oil. As the war has made it difficult to import these essential commodities, the prices of these commodities in the world market have also increased.
Khandaker Golam Moazzem, research director at the Center for Policy Dialogue or CPD, said: “With the closure of Swift in Russia, transactions have become quite difficult. Besides, importing goods from Russia has become a difficult task as the shipping of Bangladesh with Russia has also stopped.” This has a negative impact on the economy of Bangladesh. Bangladesh has to import these alternative products from any country to overcome such a situation. However, the issue will be quite time-consuming and costly due to the effects of the war. The cost of imports will increase further especially considering the distance and duty fee. Moreover, suppose the import cost of goods increases naturally. In that case, the retail and wholesale prices of goods in the country will also increase, adversely affecting the country’s economy.
Rooppur Nuclear Power Plant is Bangladesh’s first nuclear power plant. The estimated cost of this project is estimated at 1 lakh 13 thousand crores. According to the BBC, 90 percent of the total funding for the project is provided by Russia’s VB Bank as loan assistance. However, in the wake of the Russia-Ukraine war, several Russian banks, including the state-owned VB Bank, have been banned from Western countries. Ahsan H. Mansoor, executive director of the Policy Research Institute of Bangladesh, said: “In the current context of the war, Russia will not be able to fund the Rooppur nuclear power plant in Bangladesh.”
However, Ziaul Hasan, senior secretary at Bangladesh’s Ministry of Science and Technology, said: “The project currently employs about 6,000 workers from Russia, Ukraine, and Kazakhstan, as well as about 26,000 workers, including Bangladeshi workers, who have not yet had any problem paying.” Besides, the Bangladesh government thinks that since Russia is working on the project itself, Russia will be able to provide loans from other banks even if its state-owned VEB Bank is banned.
Also, during the war this year, on the 13th of March, a special cargo flight from Russia sent 84 tons of cargo to Bangladesh, which will be used for the Rooppur nuclear power plant. This suggests that even if Western countries try to create obstacles for Russia, the work of the Russian-backed Rooppur project in Bangladesh will not be a problem. Mohammad Shawkat Akbar, director of Nuclear Power Plant Company Bangladesh Ltd, also clarified the closure of SWIFT. After the approval of these documents, Sonali Bank of Bangladesh distributes money for the project.
In terms of edible oil, Bangladesh has an annual demand of 2 million tons of edible oil, against which Bangladesh produces only 0.2-0.3 million tons. This means that Bangladesh has to import the remaining 90 percent of the oil. Although Bangladesh procures minimal oil seeds from Russia and Ukraine, most edible oil is imported from Argentina, and soybean seeds are imported from Brazil. According to a report in The Daily Star, the price of soybean oil, which was $1,460 per tonne in January 2022, rose to $1,598 the following month. Many countries have stopped importing oil from Russia due to the Ukraine-Russia war. As a result, the oil price in the world market has increased several times.
Meanwhile, the demand for edible oil during Ramadan will be around 3 lakh tonnes, just like every year. During Ramadan, the oil price per liter increases every time in Bangladesh. Due to the war, if the edible oil price continues to rise around the world, there is a possibility of a further increase in Bangladesh, which will have an adverse effect on the country’s economy.
Just like the case of edible oil, in the case of fuel, the price of crude oil in the international market during the pandemic, which was only $50 per barrel, has now come down to $139 in 2022. In addition, energy experts and economists are expecting the price to rise to $200. Russia is the third-largest producer of fuel oil in the world. If the price of fuel oil in the global market continues to rise at this rate, it will impact Bangladesh as well. Because according to energy expert Professor M Tamim, 40 percent of the total energy of Bangladesh has to be imported. Therefore, importing oil at higher prices will increase oil prices per liter. If oil prices rise again, the cost of transportation and electricity in the country will increase further, significantly hurting the country’s economy.
Professor M Tamim advised the Government of Bangladesh to take several diplomatic initiatives to avoid such a situation and keep commodity prices under control. He further said that an agreement has to be reached with all the countries where Bangladesh imports oil, gas, and other commodities.
In addition, Mustafizur Rahman, Honorary Fellow of the Center for Policy Dialogue, advised the government to increase surveillance in the domestic market and bargaining in the international market.
Russia has also banned Russian airspace for 32 countries, including the European Union and Canada, following the announcement of a complete shutdown of Russian aviation in European Union airspace over the war in Ukraine. This has increased the distance of Bangladesh’s transport in import and export of goods to several Asian countries and distant countries outside Asia, along with increased transportation costs in import and export.
Russia and Belarus are also the world’s largest suppliers of the potash fertilizer. The export of which has been stopped due to the war. Russia and Ukraine, on the other hand, are the top two countries in terms of wheat. In January 2022, the price of wheat was $334.50 per tonne, which rose to $353 in March. This has also increased the cost of importing wheat to Bangladesh.
In such a world market situation, instability is also being noticed in Europe and the US economy. As a result of the war, the rising prices of various commodities, including oil and gas, have put pressure on the economies of these countries, which will reduce the purchasing power of the people. In addition to EU countries, Bangladesh generates 75.73% of export earnings from USA, Canada and UK.
If the purchasing power of the people of these countries decreases, the amount of import from Bangladesh will also decrease. The biggest blow will come to the country’s RMG sector because 64% of the exports of the RMG sector are generated from the countries of the European Union.
Considering all these, it is easy to see that the Ukraine-Russia war is not just a war between two countries but a kind of economic warfare that impacts the whole world. Due to the global impact, the war will have a considerable impact on Bangladesh as well.