Nearly two weeks after the start of the war in Ukraine, the French – and Europeans in general – are already seeing the first repercussions. Far from the front and the tragedies of the armed conflict, the West is preparing to have to tighten its belt because the Russian invasion has already had an impact on several essential sectors. Energies, construction, food… This war will have “lasting consequences” warned Emmanuel Macron. Energy, mineral raw materials, agricultural raw materials… Certain logistics flows will be very strained and France will in any case be directly or indirectly impacted by the increase in the prices of these raw materials worldwide. For reasons of energy or food security, it is likely that historic measures will be taken in Europe.
As Moscow is strangled by a series of sanctions, the Kremlin warned on Monday (March 7) of “catastrophic consequences” for the world market of the implementation of a Western embargo on Russian oil, discussed by Washington and the European Union, pointing to a “soaring price” which “risks being unpredictable”, according to the Russian Deputy Prime Minister, in charge of Energy, Alexandre Novak.
In addition, he threatened to cut off Russian gas from Europe, on which certain countries are very dependent: “We have every right to take a similar decision and put our embargo on gas deliveries via the North gas pipeline Stream I.” Knowing that the French are already suffering from record inflation since December, disconnected from the Ukrainian conflict, their wallet could suffer a little more because of the sanctions.
- Oil: the liter of gasoline soon to 3 euros?
Russia is one of the world’s leading producers of gas and oil, and investors are panicking about possible disruptions in the supply of hydrocarbons. For now, economic sanctions avoid the energy sector, but the United States, less dependent than Europe thanks to its national production, is now talking about a ban on importing Russian oil. The Kremlin warned Monday, March 7 against “catastrophic consequences” for the world market of the establishment of a Western embargo on Russian oil, pointing to a “surge in prices” which “risks being unpredictable”, according to the Russian Deputy Prime Minister, in charge of Energy, Alexandre Novak. As a reminder, the export of oil is the primary source of revenue for Russia, ahead of gas. Nevertheless, the price of oil largely depends on the reactions of the markets. According to Michel-Edouard Leclerc, interviewed by franceinfo, the worst is yet to come. “There will be an increase of eight to ten centimes in the week in all service stations in France,” he warns. According to him, “the trend is up” and prices should continue to rise”. “We continue to buy Russian oil” and the problem “is to switch from one supply to another, to seek barges in the United States,” he continues.
The price of oil, already at a high level due to a stagnation in world production, has experienced a surge since the start of the Russian invasion of Ukraine. “Depending on the turn of events, a liter of gasoline at 3 euros is possible, even plausible”, warns 20 minutes entry Bernard Keppenne, Chief Economist at CBC Banque. Oil prices, whether Brent from the North Sea or the American WTI, approached their all-time highs on Monday, briefly exceeding 130 dollars a barrel for the first time since 2008. For France, the consequences are to be expected, but its first supplier is not Russia. According to figures from INSEEParis gets more oil from OPEC countries (more than 40%) and only 8% from Russia.
Diversifying supplies is indeed the solution pointed out by Olivier Bourgeot, economist specializing in technologies and associate researcher at Iris. With an increase in production from other countries, such as the United States or Saudi Arabia, there is hope of being able to counter a possible supply stoppage via Russia. “We are not going to create an oil shock without having an alternative, but it is not so easy to diversify overnight,” he explains to L’Express. The increases in the stations should also be countered by government aid on gasoline which will be “improved”, promised the president and now candidate Emmanuel Macron on Monday evening. “There will be a gasoline part”, in the “resilience” plan that the government is “in the process of completing”, he added.
- Gas: an outbreak that is likely to last
The scenario is similar for gas. Its price has reached a historic record in Europe, at 345 euros per megawatt hour and the European Union imports more than 40% of its gas from Russia. If, for the moment, Russian gas continues to pass through Ukraine, the Kremlin has threatened to cut off the tap to the Europeans. “The fear that this exchange will be interrupted, at least partially, due to possible sanctions contributes to the soaring prices”, comments Olivier Bourgeot. Here too, Europe will “resume a policy of diversification” of suppliers.
The French will nevertheless be less impacted than other European inhabitants whose countries are more dependent on Russian gas, such as Germany. France has indeed reduced its import of Russian gas for several years, from 25% in 2007, according to a Senate information reportat around 17% today.
“We import less than other European countries, so France will be less directly affected, but gas prices also depend on world prices,” said the economist. And to add: “If we manage to increase demand from other producers, we can avoid disaster” but “we must however expect high inflation”. In addition, the government is trying to protect the French by confirming that the gas price freeze, in effect until the end of June, would be extended until the end of the year.
- Food: an average increase of 3.6%?
Russia, which in 2018 became the world’s leading wheat exporter, is crucial for feeding the planet. Ukraine’s export capacities are also of concern. The two countries are a breadbasket for the rest of the world. In the general commodity boom caused by the fighting in Ukraine, wheat and maize also broke records on the European market. Thus, in Europe, the price of wheat has soared since the start of the conflict to reach an unprecedented price on Monday, at 450 euros per tonne.
Ukraine is also the world’s fourth largest maize exporter. But according to the specialized firm Agritel, “it is on sunflower oil that weighs the greatest danger”. Famous for its sunflower fields as far as the eye can see, Ukraine is the world’s leading producer of oilseeds and the world’s leading exporter of its oil and “the situation is very tense on the world oil market”, analyzes Sébastien Poncelet, expert at Agritel, interviewed by AFP. French Agriculture Minister Julien Denormandie also said on Tuesday that Europe must produce more to “avoid a global food crisis” with the “probable” cessation of part of Russian and Ukrainian cereal exports.
According to a decree published Sunday evening, a license issued by the authorities is now necessary to export wheat, poultry meat, eggs, sunflower oil. However, the difficulties in getting cereals out of the country will have no impact on flows in France, says Olivier Bourgeot, but on prices yes. “We are seeing a surge in prices in all the financial markets”, he summarizes “but there is no shortage to be expected” in France.
A price increase has already weighed on the receipt for several months because of the transport difficulties caused by the pandemic. And it should continue. “Inflation, if it continues” will be felt on prices in supermarkets rather “next summer”, says Michel-Edouard Leclerc who foresees in the coming months “an average increase in food of 3.6%”.
Here too, the government is trying to stem the rise in prices so that this conflict has the least possible impact on the budget of French households. Visiting the agricultural fair on Friday, Bruno Le Maire notably assured that the government intended to “massively support the agricultural world”. “We will provide a response to all the French people most affected by the crisis, (…) responses targeted at those who need it the most”, he also promised.
- Aluminum, nickel: French factories facing the risk of shortages
The industrial metals “most exposed” to Russia’s sanctions by the international community are aluminum, nickel and palladium, Capital Economics estimates. And in the wake of energy prices, those of metals produced in Russia are climbing, with aluminum exceeding the 4,000 dollar mark for the first time while copper and palladium have hit new all-time highs.
The price of nickel continued its wild ride on Tuesday morning, even briefly climbing above 100,000 dollars per ton in session, investors fearing that Russia could no longer export its production. And faced with this surge, the London market was forced to suspend the price of nickel in the middle of the morning. Capital Economics estimates that 7% of the global refined nickel market “could be affected” by possible sanctions. However, this metal is one of the most demanded on the planet in electric battery factories, supposed to allow the automotive industry to abandon oil.
Titanium, a metal prized by aircraft manufacturers for its lightness and very high resistance, is also an indirect issue in the conflict. The Russian company VSMPO-Avisma, founded in 1941 in the Urals, is the leading supplier to world aeronautics, in particular to Airbus, according to the general manager of the aeronautical engine manufacturer Safran, Olivier Andriès. But just under 50% of the titanium imported by French aviation comes from the Russian group, according to The gallery.
Thereby, “without these metals, certain French industries could simply no longer ensure their production”, explains to franceinfo Sarah Guillou, director of the innovation and competition department of the French Observatory of Economic Conditions (OFCE). “Dependence on Russian metals is difficult to quantify, she adds, because customs figures do not necessarily specify where the raw materials come from. Officially, France imports 3% of its non-ferrous metals from Russia but this figure is certainly underestimated.”
In any case, French companies that import these Russian products will be impacted in the event of a price increase if Russia decides to restrict its sales, which should put a brake on the production chains. Nevertheless, according to Sarah Guillou, importers in relation to Russia are “used to being faced with conflicts, restrictions”. Everything will ultimately depend on the duration of the conflict in Ukraine.