Here’s How Russia-Ukraine’s War Could Affect Pakistan

The looming Russian invasion of Ukraine has led local developments to forecast ‘panic’ in Pakistan’s economy and other various sectors.

According to a research report by Ismail Iqbal Securities (Pvt.) Limited, the impending war situation has wider implications for Pakistan due to the likelihood of another rally in the prices of energy, food commodities, and semiconductor chips, and a direct impact is evident in Pakistan’s import of wheat from Ukraine.

Pakistan imported 39 percent of its total wheat imports from Ukraine in FY21, and any disruption in the imports can potentially result in elevated prices of food and energy in the region.

The report highlighted the following commodities whose disruptions may pose a significant risk to Pakistan’s economy and different sectors across the country:

Commodity	Trade Flow	Country	Risk of Disruption	Impact	Economy/Sector
Crude Oil & Gas	Exports	Russia	Low	Negative	Economy
Iron & Steel	Exports	Russia	Low	Neutral	Engineering
Palladium (Metal & Mining)	Exports	Russia	Low	Neutral	Autos
Cereals (Corn, Wheat & Barley)	Exports	Ukraine	High	Negative	Economy
Neon (Metal & Mining)	Exports	Ukraine	High	Negative	Autos
Iron & Steel Products	Exports	Ukraine	High	Negative	Engineering

In energy commodities, the report forecasts a short-term price rally in crude oil, Liquified Natural Gas (LNG), and coal prices, which is likely to deteriorate Pakistan’s current account situation further.

For other commodities, the report highlights the major risks to the Automobile sector in the wake of any chip shortages. In the metals and mining sector, the USA  purchased approximately 35 percent of a semiconductor grade ‘palladium’ requirement from Russia. Any possible shift of the USA’s demand to other countries can trigger another wave of chip shortages which may greatly affect the global automobile industry.

Against this backdrop, Ukraine remained a key supplier of the chemical element ‘neon’ (used in the making of semiconductor chips) to the USA. Around 90 percent of the USA’s neon supplies come from Ukraine. In the case of disruption in Ukrainian exports, the USA automobile industry experience another wave of chip shortages, and other global automakers will struggle to secure chip supplies as well.

In terms of other indiscriminate possibilities, the steel industry is expected to witness high raw material prices and finished goods prices. In the short run, a price rally in finished steel products such as cold-rolled steel (CRC), rebars, and tabular steel might result in inventory gains. However, in the medium-term, demand obstruction is likely to occur due to already higher prices.

Overall, trade in this region will be impacted and will cause commodity prices to remain elevated. In the meantime, major exports from Russia are less likely to be disrupted, and any price rally generated in Russia’s major export products is expected to last in the short term.

While it is unclear how actual events will materialize as informal dialogues progress between both nations, the report estimates Ukraine to bear the cost of warfare and to give in. This could be followed by the change of regime in Ukraine along with the creation of a ‘Union State’ in East Ukraine.

Post-invasion (if there is one), the report does not foresee any major long-term risk to Russia’s exports except for short-term disruptions in crude oil and gas exports.