Value context and insight. lkm@koreatimes.co.kr
Ukraine feud poses downside risk to Korea
A cargo vessel carrying liquefied natural gas. Korea Times file
By Lee Kyung-min
By Lee Kyung-min
Concerns are mounting that escalating tensions in Ukraine could pose downside risks to Korea, an emerging market highly vulnerable to an exodus of foreign capital triggered by global financial market uncertainties.
A closer look at the conflict between Ukraine and Russia, the world's largest natural gas exporter, shows that the standoff involves Moscow and Western countries, a reason why market watchers are paying close attention to how big of an impact a war over geopolitical hegemony could have on the energy market.
Natural gas prices in Europe have spiked six-fold this year, due to supply chain uncertainties. The price volatility increased further after the U.S. delayed the operation of gas pipes connecting Germany and Russia to tame its military aggressions. Europe relies on Russia for about 40 percent of its total natural gas supply.
Energy crisis concerns are mounting, since Korea will not be able to indefinitely delay paying higher energy costs. The government froze electricity fees for the first quarter of next year to curb soaring inflation, but sharp demand for heating in the winter is expected to jack up electricity and liquefied natural gas bills next year.
“The intensifying feud will have a significant impact on the global economy, because it is not only about the two neighboring countries, but a confrontation between Russia and the U.S.-led group of Western countries,” Daishin Securities researcher Lee Da-eun said.
Further complicating the matter is the high probability of U.S.-imposed trade sanctions against Russia, a significantly large trading partner of European countries, certain to suffer material, economic and financial damage, if the export is reduced.
Russia has recently gathered some 170,000 troops on its border with Ukraine, raising military tensions with the U.S. and its allies. The world's largest economy warned Russia of “unprecedented” sanctions if it invades Ukraine.
Rising prices of key exports from Russia, the world's third-largest crude oil exporter after the U.S. and Saudi Arabia, will lead to wider fluctuations in the global commodities market. This in turn will directly impact the financial markets of emerging economies highly reliant on exports and foreign capital for investment.
“A deepening conflict will have a graver negative impact on emerging economies, mostly concerning capital outflows. How long and intense the political rivalry will become will determine the degree to which emerging markets are affected,” Lee added.