How would Russia’s invasion of Ukraine affect Mexico?

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A military conflict in Ukraine would hit fuel prices, increase inflation and impact the exchange rate of the Mexican peso.

The conflict between Russia and Ukraine has escalated in recent days. On Tuesday, the upper house of the Russian parliament authorized President Vladimir Putin to use his military force outside Russia, suggesting that a military deployment by Moscow on Ukrainian territory is imminent. 

The conflict between both nations, the intervention of the United States, the sanctions of the United Kingdom and countries of the European Union, and the constant flirtation of China with Russia has already wreaked havoc on the exchange rates of currencies in emerging countries, an increase in fuel prices and trade disagreements.

But how would a Russian invasion of Ukraine affect Mexico’s economy ?

According to the journalist Enrique Quintana, the first blow would be received by the price of gasoline and gas. Brent oil has traded above 90 dollars a barrel and has already accumulated a rise of 36 percent since December .

A conflict in Ukraine would inevitably hit the prices of hydrocarbons in international markets harder, fueling global inflation and increasing the possibility of more aggressive rises in interest rates across the board.

This would particularly affect Mexico if the government of Andrés Manuel López Obrador continues to import gasoline from the United States in the way it has been doing. Since, as reported by the columnist for El FinancieroJonathan Ruiz Torre, from January to November 2021, our country imported 460 thousand barrels of gasoline per day from the US, according to the Energy Information Agency of that nation.

Cómo afectaría a México una guerra entre Rusia y Ucrania?

Another scenario that would directly affect Mexico is the possible new recession in Europe caused by the suspension of gas supplies from Russia to Europe.

According to the most recent IMF forecasts, the Euro Zone would grow at a rate of 3.9 percent this year, after having grown by 5.2 percent in 2021 and after falling by 6.3 percent in 2020. That is, if not If there were any major upheaval, at the end of this year the European economy would be 2.4 percent above 2019.

However, a gas supply problem would slow industrial activity in the Euro Zone, which would probably cause the economy to slump again.

The GDP of the European Union represents approximately a fifth of world GDP, so it would be very likely that a fall would have repercussions globally, including Mexico.

Finally, for Quintana, a military conflict in an area as relevant as Ukraine would cause the perception of risk in international markets to grow globally, which could probably cause a run of resources from emerging markets towards safe havens such as Treasury bonds from US.

It would be almost impossible to avoid an impact on our currency and in general on financial variables in Mexico.

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Source: elfinanciero.com.mx

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