Monday, October 3, 2022
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Global instability, economic consequences of war

As the days go by and the war in Ukraine continues, the world economy has seen signs of a process of instability on several fronts: economic, financial, energy, production and, above all, the humanitarian cost of the conflict. The expectations of an agreement seem to move away and with it the imbalances caused by the invasion are entrenched.

Shortages of strategic supplies will cause collateral effects, affecting supplies that will result in a global inflation scenario that is higher than expected. Oil prices have skyrocketed; yesterday WTI reached 126 and Brent 130 dollars per barrel, and analysts are even contemplating catastrophic scenarios of 150 dollars a barrel. In the Mexican case, the Ministry of Finance in its macro framework forecasts contemplated a price range of 58.6 to 63.7 for 2022 and 63.7 to 67.2 for 2023. These forecasts were revised by the Bank of Mexico in its quarterly report of March 2 past, where there is talk of an adjustment in oil prices throughout the year to close in a range close to 80 dollars. This will have differentiated repercussions for the Mexican economy, since on the one hand there will be a benefit from a higher price of oil, but at the same time there will be a negative effect on the pockets of Mexicans as the cost of gasoline and all derivatives will rise. of the oil.

The increase that has occurred in the reference prices of gasoline and diesel due to the recovery in international crude oil prices has generated that the amount of the IEPS stimulus issued weekly by the SHCP is the equivalent of 99.1 percent of the federal IEPS that is paid in the case of regular gasoline. In other words, the space that the State had with the IEPS incentive so that prices do not exceed the inflationary ceiling has been exhausted, if it is maintained, the next stage is to go from the stimulus to the IEPS subsidy. In previous years, the Mexican government has granted IEPS subsidies for gasoline and diesel when crude oil prices have increased significantly in the international market. During the years in which there has been a subsidy to the IEPS, it has been offset by the increase in rights, leaving the SHCP relatively neutral for this purpose.

This process of instability opens the door to situations that had not been foreseen, the United States could seek agreements with Venezuela and Iran in order to offset the impact of the reduction in supply from Russia, and thereby stabilize the global oil market. For Maduro this is an unexpected gift, he has been offered the opportunity of a direct understanding with Washington, with pragmatic and shady security, like everything that arises from the pressure of wars, but which places him in a position to take advantage of the boom of unprecedented prices from which Venezuela, with no foreign investment other than the United States in sight, will never be able to take advantage of. In the same way, the Americans are looking for an agreement with Iran, which could unblock the nuclear pact, which has not been able to advance and which, under the pressure of the war, could be unblocked to increase the world supply of crude oil.

In this complex world of an unexpected war, it could be said that a complex chessboard has begun to move in which the existing alliances will tend to readjust, with strong macroeconomic effects where at first it is perceived negatively, reducing expectations of developing countries, including Mexico, where without a doubt the growth of the economy will be below what was expected last December, affecting public finances and also sectors dependent on supply in the region in conflict, including some of the entities that were supplied with fertilizers from Russia and grains or products from the field of Ukraine. Another key issue will be how the financial blockade against Russia is resolved, which will undoubtedly affect the cost of money worldwide.

The medium-term scenario seems more nebulous since everything will depend on the final agreements that are reached once the conflict is over, which could be indefinite, where one possibility could be that there are no conditions to rebuild the war region, such as the that occurred after the Second World War, but to remain in a impasse making reconstruction difficult. These are turbulent times in which countries like ours are exposed to instability and thus to a reduction in living standards.

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