How Could Latin America Benefit From the Ukraine Conflict?

The Cold War was a conflict born after the end of the Second World War, in 1945, which culminated, according to historians, with the dissolution of the Soviet Union (USSR) in 1990. For 45 years, in the world the geopolitical and social phrase The most popular was: “Who will press the button first?”, in a clear reference to the widespread fear that one of the two sides of this “war” (the United States or the then USSR) would launch a missile to destroy the other.

Although the world believes that this conflict culminated in the last decade of the 20th century, the truth is that the tensions between the North American giant and its Eurasian equal are not over, as evidenced by the recent news that has a small European country as its central point: Ukraine.

The recent presence of forces of the North Atlantic Treaty Organization (NATO), of which the United States is a part, on the Ukrainian border with Russia, has caused this country to initiate a military escalation towards the former nation attached to the USSR.

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For the Kremlin, the presence of NATO in Ukrainian territory represents a clear threat, not only to its sovereignty but also to the interests that the Russians still have over Ukraine. The United States, for its part, believes that Ukraine has no reason to pay homage to Russia, which is why it has promised to defend this country in the event of a further Russian escalation on its territory.

Of course, what seems to be the possible start of a military conflict, turns day by day into a new threat of diplomatic tensions that have not been experienced for more than 30 years. 

It is no secret to anyone that Russia is one of the largest extractors of oil and its by-products, along with the United States. and Saudi Arabia. According to the 2020 World Energy BP Statistical Review, in 2019 more than 95 million barrels of oil were pumped out every day, and these three countries took the lead in this ranking: the United States produces 19% of the world’s oil, while Saudi Arabia produces 12%, followed by Russia with 11%.

So, how would a possible conflict between Russia and the United States affect the economy, when are these two of the three countries that have control of oil production in the world?

According to predictions by the business giant JP Morgan, if Russia decides to start a confrontation in Ukrainian territory, the price of a barrel of Brent, which to date costs around 87 dollars, could rise to 150 dollars. “This comes after high inflation and a global economy being hit by a pandemic, adding to the short-term fragility of what would otherwise be a fundamentally strong recovery”, explains JP Morgan.

Likewise, this financial services company indicates that the increase in the price of oil would occur because the extraction supply of this material would be interrupted by at least 2.3 million barrels per day, a drop of more than 21% if the production figures for 2021 are taken into account.

However, in every crisis, just as there are losers, there are also winners, and in this case, the “beneficiaries” of the shutdown in Russia, would be the other countries’ producers who would see how the price of oil increases, while it’s demand decreases. Of course, inflation in this market would be higher, but in the producing countries, this item could mean a “respite” in the face of economic reactivation after the covid-19 pandemic in their territories. 

Thus, producing Latin American countries such as Brazil, Colombia, Argentina, Guyana, Mexico, Ecuador and Venezuela could benefit from a possible conflict between the United States and Russia , since two of the largest oil producers would be focusing the extraction of this material and its use in defending their interests in Ukrainian lands.

Now, on paper, this sounds ‘good’ for the region. However, we must remember that most of the crude oil-producing countries in Latin America are not exactly experts in the production of its derivatives such as gasoline. In fact, some of them, such as Mexico and Colombia, import fuel, mostly from the United States.

In short: if the price of oil increases, although it could mean a great bonanza, it would also represent a new threat to the increase in the price of gasoline, which could, in turn, increase inflation in these territories; without counting the impact it would have on those countries that are not producers in the region.

“The figures, in general, indicate that inflation will remain high for longer. Of course, we, together with the international community, are interested in finding a solution to this issue”, indicated Gita Gopinath, director of the Analysis Department of the International Monetary Fund (IMF).

If the price of oil goes up, the cost of living around the world goes up. The bonanza, although existing, could be short-lived considering the low industrial power in Latin America. We would enter a bottleneck wherein the end inflation would surely win the race, in the midst of what could be a war without precedent in the 21st century.