Asian economies do not depend on Russia too much – but impacts of the crisis are felt everywhere

2 weeks into the Russian-Ukrainian war and we are still in shock and awe at how the world has changed within such a short time. With economic sanctions being levied against Russia in response to its invasion of Ukraine, we can expect the economic impact to hit the Asian economies as well. The role China wishes to play is still ambiguous and I feel that there is a struggle in the party head office on what is the right geopolitical move will be. Torn between loyalty to the partnership with Russia on the one hand and fighting the systemic trade war with the West on the other – president Xi needs to make a difficult choice. If he jumps over the fence and brokers a peace deal, he will be admired for sure by the EU and USA.

Countries in the region have various levels and types of exposure to the Russian economy. We can expect higher food and energy prices, and some manufacturing supply chain shocks that will impact countries across the region in different ways. Russian energy giants and major state-owned companies are engaged in countries like Indonesia, Malaysia, and Vietnam.
Russia is a major energy exporter but ASEAN’s direct exposure in this regard is limited. Based on trade data from the Atlas of Economic Complexity Singapore imported $38.8 billion of refined petroleum oil in 2019, but only 5.7 percent of it came from Russia. Thailand is in a similar situation, importing $16.6 billion worth of crude in 2019, but only 3.3 percent of it from Russia. Vietnam, which secured 15 percent of its coal imports from Russia, maybe more exposed, although presumably Australia and Indonesia can step up exports to fill the shortfall. Either way, energy prices have already been under upward price pressure for months and this conflict will drive them even higher across the board and will fuel inflation.
Manufacturing is also likely to take a hit. Russia and Ukraine are major providers of semi-finished iron and steel, an important input in the manufacture of cars, machinery, and electronics. In 2019, Thailand sourced 21.4 percent of its semifinished steel from Russia and Ukraine, Indonesia 25 percent, and the Philippines almost half. Perhaps in some places, domestic production can increase to compensate or producers like Japan can increase output. But the disruption of the supply chains seems unavoidable.
As there is mounting pressure to exit business partnerships with Russian companies ASEAN may not be so eager to take the write-downs. Malaysia’s state-owned oil and gas company, Petronas, along with Gazprom and South Korean and Turkish partners, owns a 15 percent stake in Iraq’s Badra oil field. Petronas has already said they won’t be pulling out of the joint venture at this time. Vietsovpetro, a joint venture between Russia’s Zarubezhneft and Vietnam’s state-owned Vietpetro, is one of the largest energy companies in Vietnam, a country with long-standing economic ties to Russia. In Indonesia, state oil and gas company Pertamina is developing a major domestic refinery in which

Russia’s Rosneft owns a 45 percent stake. The project has an estimated value of $13.8 billion and will give a crucial boost to domestic refinery capacity when completed.
These examples explain why ASEAN has been rather restrained in its position on the Russian invasion. At the end of the day, it is the perspective that counts. While many of the ASEAN countries still struggle for the economic development of their people the “West” struggles for democracy and freedom – values which are also seen and respected in ASEAN but maybe a little less important here than there. At the end of the day, decision-makers will face a multidimensional dilemma between ethical values.

As we write these lines a new initiative is being started by the previous chancellor of Germany Gerhard Schröder to broker a peace deal.
Best of luck on this mission.

Volker Friedrich
Kuala Lumpur, March 2022

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