Global oil and liquified natural gas (LNG) prices are likely to see a sharp rise in the event of a Russia-Ukraine conflict, which 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 likely to arise from import diversion and diversification, although there may be opportunities for commodities producers in Central Asia to increase supply to China.
Supply chain bottlenecks will also be aggravated, adding to inflation pressures in the region.
Tensions have been escalating between Ukraine and Russia in recent weeks, and on Monday Moscow decided to recognize two separatist regions of eastern Ukraine as independent and deployed Russian troops there.
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“The global price of oil and liquified natural gas (LNG) is likely to rise sharply in the event of a conflict, which will be positive for the relatively few exporters in the Asia Pacific region and negative for the substantially greater number of net energy importers.”
“However, a mitigating factor is that several Asian economies have long-term supply contracts in place for LNG, which will limit the impact of fluctuations in the spot price,” Taylor said.
Global crude oil benchmark Brent neared the USD 100 per barrel on Tuesday amid the rising threat of invasion in Ukraine and fears of sanctions on Russia, the largest exporter of natural gas and second-largest oil exporter.
India imports about 85 percent of its crude oil needs and about half of its natural gas requirement.
While the imported crude oil is turned into fuels such as petrol and diesel, gas is used as CNG in automobiles and fuel in factories.
In a statement, Moody’s said its rated issuers in the Asia-Pacific have limited direct exposure to Russian or Ukrainian entities. Nonetheless, issuers in APAC may not be immune to the second-round effects of a conflict. Among the possible transmission, channels are commodities prices, trade effects, and financial market disruption.
“Financial market effects will have the largest near-term impact: for example, if a conflict gives rise to widespread risk aversion, funding conditions for high yield issuers, some of which are already experiencing constrained access to finance due to other factors, will deteriorate further,” Moody’s said.