FIRST PERSON - Alex Magno - The Philippine Star

Ukrainian forces have withdrawn from the eastern city of Lysychansk over the weekend under relentless Russian military pressure. Russia now controls all the major cities in the highly industrialized Donbas region.

Moscow has clearly shifted its strategy from a quick war to take all of Ukraine to a more modest annexation of the eastern and southern parts of the forsaken country. Ukrainian forces are literally entrenched, using heavy artillery to punish the Russians in the long hope of making their occupation ultimately untenable. They are relying on a steady stream of assistance from the Western powers to hold out.

In the first weeks of the invasion, Russia sent out its best forces from Belarus in the north to capture Kyiv and decapitate Ukraine’s government. The invasion force did not expect the strong resistance offered by the Ukrainian army, especially in the now infamous town of Bucha where retreating Russian units massacred the local population.

The best fighting units of the Russian army were left bloodied. Thousands of tanks and armored vehicles were destroyed. The units had to be returned to Russia to be rebuilt.

The industrial cities of eastern Ukraine and the southern city of Mariupol have been reduced to ruins. The Russian method of warfare involved flattening cities through intense bombardment to force the withdrawal of opposing forces.

It will take decades to rebuild those devastated cities and restore their former industrial capacity. Russia expressed no interest in doing that. This will be a costly task Europe will have to underwrite through some sort of Marshall Plan.

That massive steel plant in Mariupol alone, where Ukrainian forces mounted a heroic resistance, used to produce three times the amount of steel products of the entire Philippine steel industry. It was only partly damaged when the Nazis invaded during the Second World War. Now it is in complete ruins.

Russian occupation of the cities of eastern Ukraine does not spell the end of the war, unfortunately. It merely signals a new phase in the conflict, characterized by a prolonged war of attrition marked by nearly constant artillery exchanges between the two armies.

This will be costly not only for the Russians and the Ukrainians. This will be costly for the whole world.

The prolonged war means energy costs will remain high in the foreseeable future. Western Europe is dependent on the gas pipelines running from Russia through Ukraine. Russia accounts for a significant part of global oil supply. Sanctions will keep that supply flowing at a minimum, aggravating the already serious fossil fuel shortage we experience.

Expensive energy, in turn, will produce inflationary pressures on all economies. This could have second-generation effects such as rising social and political tensions in countries entirely dependent on imported oil.

About a third of global grains production, especially wheat, originates from Ukraine and Russia. The war has interrupted farming in Ukraine. Available stocks could not reach the market through the Black Sea ports Russia has blockaded. The Russian navy mined the waters off Odessa, the last functioning Ukrainian port through which grain exports could pass.

The blockade against Ukrainian grains exports is expected to cause severe shortages later in the year. The Middle East and Africa will be most vulnerable to these shortages. In our case, the insecurity of global grains supply has forced up the price of flour. The Philippines imports all of the flour we need.

Rising prices for grains compound the inflationary push of energy costs. It will inevitably reflect in the prices of all other food items.

Russia is a major global supplier of fertilizer products. Our agriculture is now feeling the pressure of rising fertilizer costs because of the effect of the international sanctions. Fertilizer supply issues will in turn reflect in lower yield for our agriculture.

There are other supply chain issues. Filipino steel manufacturers rely on Russian billet imports. Even as Russia may offer deep discounts on its billet exports, our manufacturers could not easily pay for them through the international banks because of the sanctions.

The same payment issues will hound us if we decide to buy oil from Russia directly. Russia has made us an offer, but global financial sanctions make payments difficult. At any rate, only Petron has any operational refining capacity and this will not be enough to process all the fuel we need.

As the war in Ukraine shows every sign of grinding on with terrible costs in lives and property, the rest of the world will have to find new ways to cope with the shortages in oil, gas and grains the long war implies.

Over the decades of relative peace since the end of the Second World War, the world evolved rather comfortably in open trade. The law of comparative advantages worked to produce a system of global interdependence. Countries produced what they do most efficiently and relied on trade.

Some describe this system as “globalization.” It has been an efficient system that enabled resource-poor countries such as Japan, the Philippines and Indonesia to freely import wheat and oil from countries that produced them efficiently. This enabled efficient agriculture, such as Ukraine’s, to feed over 400 million people – ten times its population.

Some people dislike “globalization” and advocate self-sufficiency. But we are a country with no oil and no wheat. We have no choice but to import commodities we cannot produce and somehow offset this by exporting commodities we do produce. It is a most efficient system that enabled many poor countries to progress.

Now it is threatened.


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