Russia’s invasion of Ukraine is having a substantial impact on the political, economic and trade spheres worldwide. Uncertainty, mobility restrictions and higher energy prices are putting in jeopardy the recovery of tourism. For the time being, hotels are not yet receiving cancellations, but they are beginning to notice a slowdown in bookings in the expectation of seeing how this new crisis develops.
Brent crude oil has climbed to $125 a barrel in the early hours of the day. Natural gas has soared nearly 40%. Russia, a member of the OPEC+ cartel, is the region’s leading producer in both cases. Rising energy costs will ripple throughout the economy.
The outbreak of the war comes at a time when inflation is at a historically high level in the Eurozone, where it has reached 5.1%, and very high worldwide. It will probably be more difficult for prices to moderate, since both fuels and other energy sources will rise and the industry’s transport and production costs will be passed on, to the extent that they can, to their customers.
Ukraine and Russia are major producers of wheat, corn and sunflower oil. “Rising geopolitical tensions further amplify the commodity problem, given Russia’s far-reaching impact on global commodity markets,” JP Morgan said in a report.
At the same time, experts expect a huge impact for industry, which already faces critical shortages of metals from aluminum to zinc. The consequences could be particularly severe in the palladium market, where Russia accounts for about 40% of global supply.
The energy crisis, aggravated by the war, is likely to affect a family economy already battered by high inflation rates and the cost of fuel, which will translate into an increase in the price of airline tickets and other transportation costs. One of the strongest impacts on the tourism sector will be derived from the increase in oil prices, which will cause air transport prices to rise.
Fuel consumption will also be higher, as the closure of Ukrainian airspace, and part of Russian, Belarusian and Moldovan airspace, cause diversions. All direct flights to and from Ukraine and most of those to Russia have been affected. Airlines will have to adjust their profit and loss accounts for this item, which represents around a third of their total expenses.
Lufthansa states on its company website that on “flights to the Far East, there may be short-term changes in departure and arrival times due to rescheduling of flight routes.” On the other hand, in several European countries there is a pocket of savings that took place during the pandemic and an unsatisfied desire to travel.
The Norwegian Cruise Line has canceled all trips to Russia, German news outlet DW reports. TUI Cruises, MSC Cruises and AIDA Cruises have followed suit. None of their vessels will be calling at St. Petersburg port this year.
Natural gas futures, which are traded on the Dutch platform TTF and are the benchmark for Europe as a whole, have fallen by more than 20%, after the upward spiral of the last few days. Specifically, the price on the TTF platform has fallen to 106.7 euros per megawatt hour (MWh), compared to the 140 euros it reached in late February. Although the current quotation level is high by historical standards, it is still far from the €180 per MWh it reached last December.
The average price of electricity on the wholesale market will surpass the 260 euros per megawatt hour (MWh) threshold, thus reaching a new high so far in 2022.
According to DW, several European countries have urged nationals to leave Ukraine. France and the US have also advised its citizens to exit Russia. Germany discourages travel to travel to Russia, and warns against heading to the country’s south and border with Ukraine.