How Wagner Rebellion Could Threaten the Global Economy
The Wagner private military group rebelled in Russia at a time when the global economy was still unstable because of the pandemic, the war in Ukraine and inflation.
Wagner's uprising on June 24 is considered the biggest crisis Russia has faced in decades. Russian authorities have not recorded any human damage. However, some houses and roads in the south have been damaged. Voronezh city officials over the weekend also reported a large fire at a local oil depot, apparently caused by Wagner's rebellion.
On CNN , analysts say this is the most serious challenge for Russian President Vladimir Putin in the past 23 years, which can cause a lot of upheaval and change. Over the past few years, Russia has ceased to be among the top 10 largest economies in the world. However, it remains one of the largest energy suppliers globally, especially to the Chinese and Indian markets, despite Western sanctions following the conflict in Ukraine early last year.
Two days ago, energy powerhouse Qatar expressed "deep concern" about the situation in Russia. "Escalating tensions in Russia and Ukraine will have a negative impact on international peace and security, especially with regard to food and energy supplies," the Qatari Foreign Ministry said after news of the uprising. Wagner.
If energy supplies from Russia are severely disrupted, China and India could compete for supplies with the West from elsewhere. If political upheaval disrupts exports of commodities such as grains or fertilizers, supply and demand will also be disturbed, driving prices up .
Wagner soldiers on the street of Rostov-on-Don (Russia) on June 24. Photo: Reuters
Richard Bronze, co-founder of Energy Aspects, thinks markets should analyze how far prices could rise if supply from Russia is threatened. "The uncertainty will pull prices up, as events like this can cause supply disruptions and fear," he explained.
Global food and energy prices have surged after the conflict in Ukraine early last year, especially in Europe and the US. After that, the price gradually cooled down but the price control war has not ended and is in the decisive stage.
"The final step in the campaign to restore price stability will be the most difficult," the Bank for International Settlements (BIS) said in a June 15 report. The risk is that inflationary sentiment will persist, leading to what economists call a wage-rise-price spiral.
Since the beginning of the year, global energy demand has weakened as economic growth has slowed. The price of US crude oil is down nearly 14% this year, to less than $70 a barrel (last year it was above $120). Brent oil also fell similarly.
Even so, oil demand is still forecast to increase to a record this year. "If anything disrupts supply, world oil prices will go up again," Bronze said.
Libya and Venezuela each recorded a sharp drop in energy exports because of domestic political turmoil. U.S. Energy Information Administration figures show Libya's oil production fell 1.7 million barrels a day, to a record low of 365,000 barrels in 2020. Venezuela's production also fell to its lowest level in decades, according to data from the U.S. Energy Information Administration. analysis by the Council on Foreign Relations (CFR).
Compared with the above two countries, Russia is of much greater importance. Russia supplies 10% of global crude oil demand as it produces nearly 10 million barrels a day. They are also the second largest oil exporter after Saudi Arabia in the OPEC+ alliance, with nearly 8 million barrels a day.
Western sanctions aim to reduce Russia's energy revenues. However, Russia's oil exports have recovered to pre-war levels, as China and India replaced Europe in buying Russian oil.
Bronze warned that after the breakup of the Soviet Union, the Russian oil industry would take a long time to recover. "Back then, the industry had real problems, both in terms of investment and stability," he said. For now, while it's too early to say if the situation has changed, "it's raising a lot of questions about what happens next," Bronze said.
Crude oil, Russian ruble fluctuate strongly after Wagner rebellion
On the morning of June 26, WTI and Brent crude oil prices both increased, while the ruble fell to a 15-month low against the USD.
In early trading this morning, the price of US crude WTI rose 1% to nearly $70 a barrel. Brent oil prices also increased nearly 1%, to 74.8 USD. Last week, both oils fell nearly 4%.
Currently, the increase of WTI and Brent is only around 0.2%. Analysts believe that prices go up due to concerns about the rebellion of the Wagner Private Military Corporation in Russia would disrupt supply in the world's top oil producer. The June 24 uprising is considered the biggest crisis Russia has faced in decades.
"The movement in the commodity markets shows that hedging sentiment has emerged. Investors are concerned that any disruption in Russia could cause disruption in the global energy market." Chris Iggo – Chief Investment Officer at Core Investments said on CNBC.
Wheat futures on the Chicago Mercantile Exchange this morning also continued to rise and fall as investors assessed the impact of developments in Russia last week. The price sometimes fell 1%, then went up 0.5% again. This month, wheat prices have increased by 25% due to dry weather in the US and the escalation of the Russian-Ukrainian war.
Telegraph also quoted information in the local Russian press on June 24 that many money changers in Russia listed the price of 200 rubles per dollar. This figure increased sharply from only 85 rubles per dollar the day before.
This morning, the ruble price had a time when it fell to a 15-month low against the USD, at 87.23 rubles for one US dollar, according to Reuters.
Asian stocks also traded mixed at the beginning of the day because of the riot. The Nikkei 225 index in Japan continuously rose and fell, currently down 0.2%. Kospi (Korea) opened lower, but then rose again, now up 0.5%.
The Hang Seng Index (Hong Kong) fell 0.3%. Shanghai Compiste (China) and S&P/ASX 200 (Australia) fell 1.1% and 0.5%, respectively.
"Stock markets may have a slight upside" on hopes that Wagner's uprising will open the door to an end to the conflict in Ukraine. However, the US economy cooling down and interest rates are maintained at high levels may drag stock prices down again, Clifford Bennett, economist at ACY Securities (Australia) said on CNN .