Canada will be the involuntary beneficiary of the war in Ukraine thanks to its exports of oil, cereals, minerals and even fertilizers. However, it will quite quickly reach the limits of its capacity to benefit from it in the short term and will also have to face other more diffuse and potentially heavier economic costs in the long term.
Nobody would confuse Canada with Russia, National Bank economists Warren Lovely and Alpa Atha observed Monday in a brief analysis. However, one cannot fail to be struck by the extraordinary resemblance of their main export sectors, starting with crude oil which tops the list in both countries, but also refined oil (2and in Russia and 6and in Canada), natural gas (in the 3and rank in both cases), wheat (5and and 12and), iron (6and and 10and), gold (7and and 4and), aluminum (at 9and rank in both cases) and wood (10and and 5and).
However, the disruption caused by Russia’s invasion of Ukraine and the trade and economic sanctions adopted by nations in concert against the aggressor have had the effect of propelling the world prices of these goods upwards. At nearly US$125 a barrel, the price of oil is now almost double what it was at the end of last year. Wheat, corn and soy are selling for more than during the food crisis of 2008. Already on the rise, nickel, aluminum and copper have all broken records while gold is approaching its own. Fertilizer prices are also rising rapidly.
Rise in export prices
“In the short term, this is definitely good news for Canada, particularly for the sectors directly concerned and the producing provinces”, notes the professor and expert in energy economics at the University of Ottawa. Jean Thomas Bernard. In the oil industry, “the money even has to come out of their ears,” he says, as the last few lean years have forced the industry to rationalize its activities and drastically reduce its production costs.
This increase in the price of Canadian exports will not only benefit Alberta and the economic sectors directly affected, Bank of Canada Governor Tiff Macklem explained at a press conference last week. It will also benefit, in a more diffuse way, the economy of Canada as a whole, notably by improving its trade balance.
The industries concerned would like, in such circumstances, to be able to take advantage of this windfall by increasing their production volumes, but this is generally not possible, points out Angelo Katsoras, geopolitical analyst at the National Bank of Canada. “You don’t launch a new oil operation in the blink of an eye, any more than you open a new mine overnight. In the United States, it takes an average of seven to ten years just to get a mining permit from the government.
In any case, an increase in oil production capacity is the last thing we want for the Canadian economy in the long term, recalls Jean-Thomas Bernard. “The course to follow is well known, and it is that of the transition to a green economy. »
Agricultural producers have a greater capacity to react than others and will not fail to adjust to the situation, notes Bruno Larue, professor and expert in international agri-food economics at Laval University. Before the outbreak of the war, Russia and Ukraine together accounted for 30% of wheat exports. “Canadian producers will adapt the composition of what they plant in their fields according to world prices. These choices will be made in the spring, and the next harvests will come in the fall if there are no droughts or floods. »
Short and long term costs
However, the war in Ukraine will not only be an opportunity to sell certain products at better prices, warn all these observers. It will also come with short-term and long-term costs, including for a country like Canada, which has minimal trade relations with Russia and Ukraine. The extent of these costs remains difficult to estimate for the moment, explained Tiff Macklem.
In addition to the risks they pose to European economic growth, these costs will mainly involve the impact of price increases on inflation, which was already a problem for all consumers, as well as the effect of the war confidence in the future of economic actors and the stability of financial markets. “We will monitor the situation very carefully and we will adapt,” assured the governor, speaking of the continuation of the increase in interest rates started last week.
“Yes, of course, the increase in world prices could benefit some, but overall, it’s always a bad thing, these cases, summarizes Bruno Larue. Because the war may continue to spread to other countries. But also because all this uncertainty is bad for business and can persist long after the crisis is over. »
Angelo Katsoras also fears that this war in Europe will deepen the “mistrust” that we have felt growing between certain countries in recent years and encourage them to entrench themselves a little more within “economic blocs”. “There is an economic cost when choosing to prioritize safety over efficiency. »