In Shakespeare’s play Julius Caesar, Mark Antony utters the words “Cry ‘Havoc!’, and let slip the dogs of war” after learning about the murder of Julius Caesar. He meant that chaos would ensue (havoc) to create the opportunity for violence (let slip the dogs of war).
The invasion of Ukraine by Russia brings the words of Shakespeare to mind. Vladimir Putin cried “Havoc!” and his troops created chaos in Ukraine. This is, however, not where it stopped because the dogs of war have been released into the rest of the world.
The day after the invasion we felt the bite of the dogs of war in SA. The rand weakened against the dollar, oil and gold prices increased sharply, and grain and oilseed prices rose.
These market moves came before the sanctions against Russia, and could be described as a shock reaction due to uncertainty as to how the situation would unfold. After the initial market reaction we saw the markets “cool down”, with most sharp initial reactions changing back to former positions. This period was, however, short-lived as the world hit back by closing airspace and borders and refusing to import products from Russia or export to them. The sanctions are in solidarity with Ukraine, an attempt to bring the Russian economy to its knees and force the Russians to withdraw from Ukraine.
Though the sanctions will certainly be successful over the long term, it changes little in the short term. The question is, how will this affect SA?
What is certain is that the total cost will outnumber the benefits. What affects everyone in SA, and the starting point of many secondary effects, is the increase in the price of crude oil. Russia is the second-largest producer of oil in the world and if the West is going to ban the import of Russian oil we will have an international shortage. Though the ban is the right thing to do to support Ukraine, it will have devastating effects on the world, with sharp increases in inflation.
The increase in the price of oil not only drives up the cost of transport, but also manufacturing costs. Fertiliser prices correlate to the oil price, and it will thus drive up the cost of grain and oilseeds.
Speaking of grain and oilseed prices, the Black Sea region (which includes Russia and Ukraine) is home to the major exporters of wheat, as well as sunflower seeds and oil. The prices of these commodities have soared in international and SA markets over the past few weeks. Though it might seem like good news for our farmers, the increase in prices is offset by high fertiliser prices and the local shortage of fertiliser. This may lead to fewer hectares of wheat being planted this year in the winter rainfall regions.
In terms of agricultural commodities, both Russia and Ukraine are importers of SA products, especially citrus, stone fruit and grapes. Alternative markets now need to be found for these products, which will affect prices negatively.
It is clear from these few examples that nothing good is coming from this situation. In short, we will see higher fuel prices (R25 to R30/litre is a possibility), higher food prices, higher inflation and a higher interest rate.
These factors affect all South Africans, especially the poor and some in the middle class who will struggle in the short term. The time has come to cut down on luxuries and tighten belts until there is certainty about how the havoc in Ukraine will play out.
• Mare is a professor in the department of agricultural economics at the University of the Free State
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