Who said panic in the markets? It is the day after the Russian invasion of Ukraine and Stock Markets closed higher in the United States and Mexico. The exchange rate of the peso had a small depreciation, but the Mexican currency is still in the area of 20 pesos, defying the laws of gravity. Commodities took a break, particularly oil and natural gas, but also wheat and gold. Perhaps they liked Biden’s message: America doesn’t want war and will try to avoid the inflationary effects of conflict in American households. This explains why the sanctions announced yesterday after the invasion target Russian financial companies. Companies in the energy sector, for now, will continue to supply Europe and the world.
Investors have probably been reassured by the inability of the “West” to agree on very tough economic sanctions against Russia. It is noteworthy that the motion to exclude it from the SWIFT global payment system was unsuccessful. There is no consensus because they need Russia’s gas and fear the escalation of inflation that will occur the moment Russia’s oil, natural gas and wheat leave Western markets. Beyond the economic calculation, it is obvious that Europe fears the Russian armies as if we were in the middle of the Cold War. If they wanted to suffocate Putin, with exemplary measures, they could not agree. Instead of suffocation, the day after the only thing they did was a good tickle.
Does this mean bunting… happy ending for the former KGB agent? clearly not. Russia mobilized up to 60,000 soldiers in this military operation and has made it clear that it wants to revise the map that was drawn with the collapse of the Soviet Union. Biden and European leaders are in shock, but they cannot bring themselves to appear weak in front of Putin. In the United States there are midterm elections at the end of the year and in France, presidential elections in April. Western leaders do not know what to do, beyond denouncing Putin’s evil. The human drama is real and it is just beginning. At the moment, there are 137 dead, and tens of thousands of Ukrainians who have started the route of forced migration. The total could reach 5 million. It is impossible to know how long the military operation will last and what its consequences will be. The United States will send 7,000 troops to Germany to bolster the security of its NATO allies. “They have left us alone,” cries the president of Ukraine.
How long will the calm in the markets last? Sooner rather than later new rounds of economic sanctions on Russia will come and this will cause cramps in the markets. Oil could resume the bull run and go well above the $100 ceiling. Gasoline in Texas is under upward pressure and will be a headache for the Mexican government and consumers. In an international scenario of high gasoline prices, the Ministry of Finance will have to choose to spend billions of pesos to maintain prices at gas stations or transfer part of the cost overrun to consumers. In a saucer of the balance is the inflation with social annoyance. On the other side, multi-million dollar spending to subsidize gasoline. These stimuli cost 104,000 million pesos in 2021. In the current year, the figure could be much higher.
The Russian inflationary stress for Mexico is not limited to oil and gasoline. There are lights on natural gas, wheat and fertilizers, products where Russia is the world leader. Gas is relevant because it is the main source to produce electricity and affects the costs of industrialists and producers. Russia is a key factor in the world supply of wheat and nitrogen and urea fertilizers. Preventing him from exporting will cause shortages and price increases. Here inflation could impact the food basket. Corn, beans and potatoes, but also bread and pizzas, for example
When the “World” decides to sanction Russia, it will be impossible for Mexico to play on its side and keep its supply chain of these goods intact. We are not alone, this will be the situation for many countries. This war will bring more inflation and less growth to the world. A new world disorder. President López Obrador says that the government is prepared, do you have an idea of how much it will cost?
General Editorial Director of El Economista
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Degree in Economics from the University of Guadalajara. He studied the Master of Journalism in El País, at the Autonomous University of Madrid in 1994, and a specialization in economic journalism at Columbia University in New York. He has been a reporter, business editor and editorial director of the Guadalajara newspaper PÚBLICO, and has worked for the newspapers Siglo 21 and Milenio.
He has specialized in economic journalism and investigative journalism, and has carried out professional stays at Cinco Días in Madrid and San Antonio Express News, in San Antonio, Texas.
