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Following the Russian military’s attack on Ukraine and the economic sanctions imposed by Japan, the United States, and Europe, a blow to the entire global economy is inevitable.
The Japanese government should make every effort to minimize the impact of rising resource prices while cooperating with powerful sanctions.
Japan, the United States and European countries have decided to impose additional sanctions on Russia, including tighter controls on the export of high-tech products and an asset freeze on major Russian banks. It is only natural for the international community to hit Moscow with harsh sanctions over its outrageous acts.
At the same time, countries need to prepare for rising resource prices.
When Russia launched an invasion of Ukraine on Thursday, major crude oil futures breached $100 per barrel on the New York market for the first time in about seven years and seven months. Europe’s benchmark futures of natural gas also soared about 60% from the previous day.
The price surges were triggered by the widespread belief that economic sanctions imposed by Japan, the U.S., Europe and other countries would disrupt energy supplies from Russia, which accounts for about 10% of the world’s crude oil production and nearly 20% of the world’s natural gas production.
Market movements prompted Japan and the United States to start considering releasing additional oil reserves along with the International Energy Agency (IEA). Japan’s Oil Stockpiling Law was devised for disasters and supply disruptions from overseas, but the government said there is no legal problem with releasing oil reserves at the request of the IEA.
It is hoped that developed countries will unite and take all possible measures to calm the market. They should also convey to oil-producing countries the need for oil price stability to counter Russian aggression.
The government plans to increase subsidies to oil wholesalers to curb gasoline prices. It aims to keep the average price of regular gasoline at about ¥170 per liter by raising the subsidy cap to about ¥25 per liter from the current ¥5.
It is unusual for the government to try to maintain gasoline prices through subsidies, but the move is expected to have a certain effect in this emergency situation.
Farmers, fishermen, transportation companies and households in cold-weather regions, in particular, are heavily burdened with fuel costs. It is hoped that generous support will be extended to them.
Soaring crude oil prices will push up the costs for logistics and raw materials for plastic products, among other things, which will affect the prices of many other items. As Russia and Ukraine are major wheat producers, grain prices are also soaring, which could cause further price rises for foods such as noodles and bread.
If prices of daily necessities surge while wage growth is sluggish, it could cool the economy, which is still in the process of recovery.
Financial markets have also become unstable, with stock prices on Thursday temporarily plummeting on the New York Stock Exchange and other bourses around the world. The government and the Bank of Japan should pay close attention to prices and market movements, and strive to bolster the economy.
— The original Japanese article appeared in The Yomiuri Shimbun on Feb. 26, 2022.
