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MP SPEAKS | How Russian invasion of Ukraine will affect Malaysians

MP SPEAKS | It has been almost one week since the start of the Russian invasion of Ukraine. While this war in Europe may seem distant to most Malaysians, there are negative consequences arising from Russia’s aggression that will be felt by the average Malaysian sooner or later.

I have listed eight of what I see are the most important negative consequences:

Increase in oil and energy prices

The price of oil (measured by BRENT CRUDE) breached the US$100/barrel mark last week and will likely remain high as long as the Russian invasion of Ukraine continues. While Petronas may reap higher profits from the rise in oil prices, the short-term effect is that petrol subsidies that must be paid for by the Finance Ministry will increase.

Possible disruption to Russian oil and gas supplies including to its key markets in Europe means a higher demand for non-Russian energy supplies and this will drive up the global price of gas and coal. This will cause an increase in the costs of operations of the power plants in Malaysia.

We already have experienced an increase in our electricity tariffs in January 2022 and high global energy prices means that the pressure for a future hike in electricity tariffs will continue to build.

Increase in commodity prices

Commodity prices have also seen increases over the past week in conjunction with the Russian invasion of Ukraine. While this may benefit the palm oil producers in Malaysia, the impact on food prices will be negatively felt by the average Malaysian.

Russia and Ukraine are significant wheat and corn producers and exporters in the global market and while Malaysians don’t consume much of these products, these are key ingredients for animal feed including chicken feed.

We have already seen how the increase in the price of chicken feed last year put significant upward pressure on the price of chicken in Malaysia. The war in Ukraine will put even more upward pressure on the price of animal feed and indirectly, food and other prices in Malaysia.

Increase in domestic and imported inflation

Malaysia has not escaped the global phenomenon of inflation as part of the economic recovery from the Covid-19 pandemic.

Some of the inflationary pressures have to do with domestic conditions such as the shortage of workers, disruptions to the local supply chain because of the floods at the end of 2021 and the control of Approved Permits (APs) to import certain food items into the country.

But imported inflation – the rise of global prices in commodities and other products which are imported into the country – also contributes to inflationary pressures in Malaysia.

The longer the war in Ukraine drags on, the higher the likelihood of imported inflation putting pressure on prices of goods and services in Malaysia and hitting the pockets of average Malaysians.

Here, we are not talking about imported Gucci bags purchased by the Top 1 percent of the income bracket. We are talking about construction materials such as steel products that are used to build houses and highways. We are talking about imported auto parts that are used to build and repair our cars and motorbikes.

We are talking about machines and machine parts which are imported to manufacture locally produced noodles and other food products.

Businesses can only absorb a certain percentage of their cost increases arising from imported inflation. The rest will have to be passed on to the consumer, meaning the average Malaysian.

Global supply chain disruptions affecting local companies and multinational companies (MNCs) operating in Malaysia

The world is still trying to adjust to ongoing global supply chain disruptions due to Covid-19 before Russia’s invasion of Ukraine. As an example, global container freight charges (the cost of shipping a container from one place to another via a sea route) more than doubled over the past year because of several Covid-19 related factors.

The war in Ukraine will not make it easier for these global supply chain disruptions to be fixed. For example, air freight costs may have to be increased as airlines are forced to change their air routes to avoid the areas affected by the war.

If Russian aggression threatens to spill over to countries neighbouring Ukraine, the possibility of even greater global supply chain disruptions increases.

Being an open trading nation, even if our direct exposure to the economies of Ukraine and Russia is limited, the negative impact of these disruptions on the costs of doing business in Malaysia and for companies that are part of the global manufacturing supply chain in the country will definitely be felt.

Pressure on global and domestic interest rates

The pressure on central banks around the world to increase their interest rates as a tool against inflationary pressures was already felt prior to the war in Ukraine.

The resulting increase in the price of oil and commodities puts even more pressure on the Federal Reserve, the European Central Bank and other central banks to increase their interest rates.

Once this happens, there will be inevitable pressure for Bank Negara to follow suit and to increase our interest rates especially to prevent a depreciation of the Ringgit. The impact of the increase in our interest rates will be felt by all those with mortgages and other bank loans.

Business with bank loans will also feel the effects of an interest rate hike and some of them will pass on this increase in financing costs to their consumers – meaning you and I.

Lower demand / economic growth

Economic uncertainties arising from a prolonged conflict in Ukraine will also dampen the global economic recovery. Companies will be less willing to invest, and individuals will be less willing to travel and spend.

Since Europe is the second largest export market for Malaysia and other Asean countries, inevitably, we will also feel some of this decrease in demand among the European countries meaning that our economic growth will also be negatively affected.

The longer the war continues, the greater the negative economic impact on Malaysia.

Remember MH17

Thus far, I have mostly focused on the negative economic impact that will be felt by the average Malaysian and not on the loss of lives of any Malaysians.

But we must remember that the conflict between Russia and Ukraine has cost Malaysian lives in the past, namely the 43 Malaysian lives that were lost as a result of the shooting down of the Malaysian Airlines 777 plane – MH17 – along with the lives of 255 individuals of other nationalities in eastern Ukraine in 2014.

There has been robust discussions and extensive investigations into the parties responsible for this act in the aftermath of the incident. What Malaysians must not forget is that even though the war in Ukraine is geographically distant from us, such conflicts have resulted in the loss of Malaysian lives in the past.

The threat of cyber warfare

Other than the physical warfare which is taking place on the streets and sovereign territory of Ukraine, cyber warfare has also been used against Ukrainian targets including websites of the Ukrainian government and some banks.[7]

It is not hard to imagine that new “malware” developed for cyber warfare can be used for targets outside Ukraine including against financial institutions in Europe and the United States.

Given our close economic ties with the major economies in Europe and in the United States, such attacks will also have spillover effects on the financial system in Malaysia.

Equally worrying is the possibility that such “malware” will find itself in the hands of rogue elements and global hackers who will no doubt use them for their own financial gain, for example, by hacking the databases of financial and other institutions around the world, including Malaysia.

The Malaysian Government must have a strong and firm diplomatic response

In view of the points highlighted above, it should be clear that Malaysia should take a strong position against the Russian invasion of Ukraine as there are clear negative impacts on the Malaysian consumer and Malaysian businesses.

Instead, the statement that was issued by the Ministry of Foreign Affairs on behalf of Prime Minister Ismail Sabri was a weak statement that neither condemned the unprovoked attacks of one nation against another nor upheld the sovereignty and territorial integrity of Ukraine.[8]

Malaysia has another chance to make our position clear which is later this week when the United Nations General Assembly votes on a resolution to support Ukraine. Malaysia’s Permanent Representative at the United Nations in New York MUST vote in support of this resolution.

An abstention will be disastrous for our international reputation especially given the strong response by the international community against Russia.

The greater the international pressure against Russia (including the ramping up of sanctions and limiting financial transactions to do with certain Russian individuals and companies), the higher the likelihood of bringing Russia to the negotiating table and ending this invasion.

The diplomatic options for the Malaysian government should be crystal clear. This is not the time to stay “neutral” especially given the negative impact that this war will bring to the average Malaysian.

ONG KIAN MING is the Bangi MP and DAP's assistant political education director.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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