Quantities guaranteed, but prices soaring. The escalation in the Russian-Ukrainian conflict panics stock market prices. Vladimir Putin decided to send his troops to Ukrainian territory at dawn on Thursday, February 24, three days after recognizing the independence of the two pro-Russian separatist “republics” of DonbassDonetsk and Lugansk.
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On Tuesday, the European Union approved at “unanimity” economic sanctions against Russia. Faced with the new step taken on Thursday, she says she is already thinking, with her allies within NATO and the G7, to implement “the complete package of the toughest sanctions” against Moscow. Franceinfo is looking at the consequences that this very unstable situation could have on the French economy and the prices of certain essential resources.
Gas: price freeze maintained
Rich in its gas, Russia holds a diplomatic weapon. It has the largest reserves in the world and ranks second among the main producing countries, behind the United States. If about 46% of the gas imported by the States of the European Union comes from Russia, a share which rises to more than 70% for certain countries of Eastern Europe, the consumption of Russian gas in France is much lower, around 24%, according to a Senate briefing report.
“We have little exposure to the Russian market, it’s 1 to 2% of French exports and imports. (…) The Russian market is not a strategic market for France”assured the Minister of the Economy Bruno Le Maire, in a statement that did not only concern gas, Wednesday on BFMTV.
Bruno Le Maire (@BrunoLeMaire): “Russia is not a major economic state” pic.twitter.com/v0sWUtKrKK
— BFMTV (@BFMTV) February 23, 2022
Russia can modulate its distribution to play on the dependence of Europeans on its gas, although it has undertaken, in its gas contracts, to deliver a defined volume of gas. And the sanctions decided by the West could influence Russian gas deliveries, like Germany’s suspension on Tuesday of the commissioning of the Nord Stream 2 gas pipeline, which was to link it with Russia.
Fact, prices are starting to soar again. On Tuesday alone, the market took about ten percent”then pointed to Philippe Chalmin, professor at Paris-Dauphine University, interviewed by France 2.
If ever Russia were to shut off the valves of its three gas pipelines to Europe, France could import more gas from its other suppliers, Norway or Algeria, which however have a limited production. It could also turn to liquefied gas, imported by boat, but this approach is longer, more expensive and difficult to maintain in the long term. Qatar, yet one of the main gas producers in the world, said on Tuesday that“no country can replace such a volume”.
Is the gas bill of the French then likely to explode? Bruno Le Maire assured that the government would maintain “the gas price freeze for individuals in all circumstances”, during a hearing before the Senate Finance Committee on Tuesday. The blocking of gas prices for individuals had been decided in October, as part of the “tariff shield” introduced to combat already high inflation. “We will hold it regardless of gas prices in the coming weeks,” insisted the Minister of the Economy.
Oil: a possible surge
Even before the entry of Russian troops in Ukraine, the fear of an open conflict had caused the price of Brent, the type of crude oil used as a standard in fixing the price of oil, to soar. The price of a barrel exceeded 105 dollars on Thursday, a first since 2014.
However, the sanctions adopted by the West against Russia do not currently threaten Russian hydrocarbon exports, which are the main financial resource of the country. “The sanctions imposed today, and those that may be decided soon, do not target oil and gas flows”said an anonymous American official in World (article reserved for subscribers)Wednesday. “We want the market [mondial] notes that there is no need to raise prices at this time.” According to him, consumer countries and the Organization of the Petroleum Exporting Countries (OPEC) are collaborating “to deal with any price spikes”.
Buteconomy circles fear that Russia, the world’s third largest producer of crude oil, behind the United States and Saudi Arabia, will lower its production. Because for Vladimir Putin, hydrocarbons are a very powerful means of pressure on Europeans, of which Russia is the second oil supplier.
Wheat: “no fear” of shortage
Cereal prices reached unprecedented levels on the European market on Thursday morning, with a peak for wheat at 344 euros per tonne on Euronext, analysts and brokers told AFP. The prices of wheat and corn, of which Ukraine is the world’s fourth largest exporter, soared at the opening, a few hours after the start of the Russian invasion.
An increase due in particular to the chartering of containers, and which could continue. “If there is a war, with most exports passing through Black Sea ports, the risk premium for ocean freight would increase, again with direct repercussions on the global market,” warned Michel Portier, director of Agritel, an analysis firm specializing in the agricultural market, contacted by franceinfo just before the invasion of Ukraine.
What consequences for France? “There is no fear of wheat shortage, because we are producers and do not import from Ukraine”reassures Michel Portier, “and this year we will hardly import corn from Ukraine”. In contrast, “our biggest dependence, at present, is on the sunflower oil market, which we import more than 50% from Ukraine, which is the world’s largest producer”, he warns. This oil is used for food, but also for the production of biofuels. Michel Portier remains confident about the quantities of Ukrainian cereal production for this year, because “Ukraine is emerging from a record campaign in the production of cereals such as sunflower”.
But the analyst sees a “real problem” for the French agri-food sector due to soaring gas prices: “We are very dependent on gas for the production of fertilizers in agriculture, so any increase will have an impact on the cost of production of cereals”. This could have an impact at the checkout, on the selling price of processed products such as pasta, flour or bread.