Moody’s predicted that the Russia-Ukraine conflict will affect global oil and LNG prices. Global oil and liquefied natural gas (LNG) prices are likely to rise sharply, negatively impacting net energy importers, according to Moody’s Investors Service.
Trade consequences are anticipated to result from import diversion and diversification, according to Moody’s Investors Service Managing Director Michael Taylor, while there may be chances for Central Asian commodities producers to enhance supply to China. Supply chain bottlenecks will be exacerbated, adding to the region’s inflationary pressures.
Moody’s said the price of oil and LNG will rise
Tensions between Ukraine and Russia have been rising in recent weeks, with Moscow recognizing two separatist territories in eastern Ukraine as independent and stationing Russian soldiers there on Monday. “In the case of a conflict, the world price of oil and liquefied natural gas (LNG) is likely to rise considerably, which will be beneficial to the Asia Pacific region’s few exporters but detrimental to the region’s vast majority of net energy importers.”
“However, a mitigating aspect is that several Asian economies have long-term LNG supply contracts in place, limiting the impact of spot price changes,” Mr. Taylor added. On Tuesday, the global crude oil benchmark Brent approached $100 a barrel, owing to the growing possibility of an invasion in Ukraine and fears of sanctions against Russia, the world’s largest natural gas exporter and second-largest oil exporter.
India imports over 85% of its crude oil and half of its natural gas. While imported crude oil is converted into gasoline and diesel, gas is used as compressed natural gas (CNG) in automobiles and as a fuel in factories. Moody’s stated in a statement that its Asia-Pacific-rated issuers have limited direct exposure to Russian or Ukrainian enterprises. Nonetheless, issuers in APAC may be vulnerable to the conflict’s second-round repercussions. Commodity pricing, trade effects, and financial market disruption are all plausible transmission mechanisms.
“Financial market repercussions will have the most near-term impact: for example, if a war causes widespread risk aversion, funding conditions for high yield issuers may worsen further,” according to Moody’s.