The Russia Ukraine war, which began on February 24th 2022, is expected to have a massive impact on the Association of Southeast Asian Nations (ASEAN) in the long term as it disrupts economic activities worldwide. According to UNCTAD, due to the war, global economic growth projections for 2022 will be lower than previously predicted, falling from 3.6% to 2.6%.
As it was, Russia was attempting to establish a stronger trade relationship with ASEAN, but the Ukraine war has hampered this goal as global sanctions have begun to take effect. Most Southeast Asian countries condemned the Ukraine Russia war, with countries like Singapore going as far as imposing economic sanctions on the protagonist. Other countries, such as Vietnam, were more mindful of their relationship with Russia and responded more subduedly to the invasion.
The trading relationship between Russia and Southeast Asia
Southeast Asia has developed a good trading relationship with Russia and Ukraine. Russia was the ninth-largest trading partner in 2019, worth €17 billion EUR. Russia also provides about 10% of the region’s fertiliser. Ukraine and Russia deliver 15% of the wheat and other cereals consumed in ASEAN.
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Due to their trade relationship with Russia, Vietnam and Laos are in a more compromised position than their regional counterparts. They were the two nations that abstained from voting on the UN General Assembly’s resolution opposing the war. In the first six months of last year, Russia became Vietnam’s largest meat supplier. Russia also delivers almost 10% of coal imports, and there is a joint venture between Russian energy company Zarubezhneft and Vietnam’s state-owned Vietpetro.
Economic effects on the ASEAN region
So far, the war’s impact on ASEAN has been minimal. However, there is still some tension due to the invasion’s overall global implications. Because of Southeast Asia’s lack of more substantial connections with Russia and Ukraine, they can find alternatives to some of the two countries’ imports.
Inflation will rise as gas and oil prices rise, raising the cost of food production and potentially leading to food shortages. Imported produce, such as wheat, will be more expensive for ASEAN consumers due to the destruction of farms, the conscription of farmers into the army and safe transportation routes. Alternative sources may also be more expensive as the demand for food products exceeds supply. Sanctions imposed on Russia will prevent the sale of fertiliser, drive up its cost, and reduce the agricultural output from farms.
Stock market volatility will hurt listed companies and reduce the number of investors funding Southeast Asia’s emerging tech startups. Moreover, private investors will have difficulty determining which organisations have been sanctioned, limiting their ability to back startups.
The ASEAN tourism industry will suffer as sanctions against Russians prevent them from visiting or spending money in the region. For example, the number of Russian tourists visiting Phuket, Thailand, has dropped by 80%, implying that hotels and restaurants are already suffering.
Another effect of the war is that shipments of goods are limited, and many Southeast Asian businesses will lose out on many sales opportunities as they await an inventory restock. In addition, the sale of minerals used in the production of semiconductors will be challenging.. It will harm the tech industry in countries like Vietnam, which have evolved into global hubs for supplying various technologies to large countries like the US.
Southeast Asia has been relying on Russia to supply new weapons to its armies. America has imposed sanctions on Russia, making countries wary of entering into new agreements with Russia.
Finally, the invasion of Ukraine raises the prospect of war between China and Southeast Asian countries. ASEAN nations have been at odds over the South China Sea, and China may follow Russia’s lead and invade Taiwan. Any such attack will hurt the Asian economy by driving away investors.
Indirect impacts of the war
The war’s indirect impact will be felt globally, with currency volatility, rising interest rates, and price increases in food, services, and energy. Many countries have tried to sever ties with Russia or impose crippling sanctions, but this has an indirect impact on other nations. With governments still recovering from the economic devastation caused by COVID-19, breaking ties with Russia is causing additional losses as leaders and businesses struggle to meet their citizens’ demand for products.
While the loss of life and effects of the Ukraine Russia war on the countries involved are tragic, it also harms people, businesses, and the global community. The impact is mainly economic for ASEAN and the Ukraine war must be resolved as soon as possible for everyone’s benefit.
Southeast Asian countries must present a united front and find a way to work together to improve their mutual regional trading numbers. They need each other to thrive, and improving their relationships will guarantee that situations such as the Russia Ukraine war do not significantly disrupt their essential economic development plans.