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BILL’S BITES: Ukraine tragedy unlikely to affect policy

11:50am March 03 2022

Westpac chief economist Bill Evans on the economic impact of the military conflict in Ukraine. (Josh Wall)

The shock to the world of the tragic aggressive military action in Ukraine has also rattled equity and commodity markets. 

But the keys to assessing the lasting economic effects are the direct impact that Ukraine and Russia have on global economic activity and Russia’s special role in energy markets.

Apart from energy, Russia has limited global significance. 

Russia’s economy is only 25 per cent larger than Australia’s, even though it has a population of 140 million and, as one US bank points out, represents around 0.1 per cent of all sales across US S&P500 companies. Ukraine’s economy is just 10 per cent the size of Australia’s.  

Therefore, while neither economy has a sizable role in global supply chains – with the exception of Russia’s palladium and aluminium exports – the war’s disruption to shipping will absolutely extend the time before we start to see genuine correction to the existing supply chain pressures caused by COVID. 

Russia, however, plays a very important role in energy markets. 

Russia produces about 8 to 9 per cent of world’s oil – or about 8 to 9 million barrels a day, out of a global output of about 100 million barrels a day. Russia controls around 25 per cent of the European oil production market and 35 per cent of European gas.

These are big numbers. 

One of the key issues will be whether Russia will be able to maintain the flow of its energy exports despite the sanctions and restrictions to SWIFT, the global financial messaging system, being placed on Russian entities, including its financial system. 

The White House has made it clear they want those energy flows to continue but, of course, there's significant political pressure to act. 

If that commitment to maintain those flows continues, we believe it’s unlikely to drive a real spike in energy prices, but it's something that we need to watch very closely. 

If we do see higher energy prices, for longer, that will certainly affect the likelihood and timing of getting inflation back to the Reserve Bank’s target range of 2 to 3 per cent.  

But I believe we're still in shape to achieve that. 

Overall, despite the tragedy of the developments in Ukraine, these events have not triggered any significant changes in our views on Australian financial markets. 


William (Bill) Evans is Westpac’s economic spokesman and is responsible for all of our economic research. In 1991, Bill joined Westpac as the Chief Economist and Head of Research. A graduate of Sydney University (BEc. Hons I and University Medal) and the London School of Economics (M. Sc.), Bill has worked as Research Manager for the Reserve Bank of Australia and as a Treasurer at the Commonwealth Bank of Australia. Bill travels frequently, advising Westpac’s customers on the Australian economy and financial markets.

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