Editorial | Risks and opportunities of war

Russia’s contribution to the global economy is not huge but its invasion of Ukraine has created global economic shock waves at a time of fragile recovery.

The Russian economy has been crippled by the raft of sanctions imposed by the EU, the US and the UK, apart from other countries. The Russian currency has crashed and major international companies are withdrawing from the country.

The immediate global impact of the war and sanctions has been the price of oil. A barrel of crude oil has shot up to $130, a price last experienced in 2008 at the height of the financial crisis.

Russia’s economy may not be great but it is a major oil and gas producer on which many European states rely on for supplies.

The decision EU leaders will be taking later tonight to curb Russian oil and gas imports is likely to cause the biggest economic upheaval for European countries.

The prices of energy and fuels are expected to continue rising and will have consequences for European households and businesses.

To add to this turmoil, both Ukraine and Russia are major grain and wheat exporters. This will lead to higher prices for staple foods.

But another impact is the rising cost of imports by rail from the far east, which would have to find an alternative route rather then pass through Russia. This will mean added costs of transportation.

Malta is not immune to these impacts, which is why the government has pledged to do ‘whatever it takes’ to cushion the economic impact of war.

A kitty of €200 million earmarked in the last budget as a cushion for rising energy prices at a time when inflation was being driven by post-pandemic recovery, will not be enough.

Finance Minister Clyde Caruana has said that the financial outlay to shield people and businesses from the impact of higher energy prices will be higher than €200 million.

Caruana has said that Malta’s decision to protect jobs and businesses during the pandemic could not be allowed to go to waste.

The government is right in adopting such a strategy although it could exact a heavy toll on public finances given the inability to predict how long the uncertainty will last.

However, Malta must also re-evaluate its energy strategy in light of these circumstances. An LNG terminal now is making more sense than a gas pipeline because it allows the country to import shipments from different countries.

Had Malta been dependent on a gas pipeline now, it risked being hit by an impending gas shortage once the Russian tap is closed.

This does not mean that Malta must not invest in a gas pipeline but it is incumbent on the EU to look beyond Russia for its energy needs.

Now is the time to push for investment in renewable energy such as solar farms and wind turbines but Europe must also have a robust transition plan that involves gas sourced from different countries, LNG terminals and nuclear power stations.

Malta must up its efforts to build offshore floating wind farms and explore a more aggressive approach for public investment in solar energy. It could also look at the potential of investing in a small floating nuclear reactor anchored several miles out at sea.

The Ukrainian war has caused western countries and companies to re-evaluate their relationship with Russia. On the economic level this presents risks but also opportunities that must be explored judiciously.