SINGAPORE — Russia’s recognition and dispatch of troops to two breakaway regions of Ukraine has led Western governments to retaliate with sanctions against people like Russia’s defence, banking and finance sectors.

Oil prices hit close to $100 a barrel on Tuesday (February 22) – their highest level since 2014 – after Moscow ordered the dispatch of troops to breakaway regions, before falling slightly on Wednesday, but there could be have further price volatility if the conflict continues to escalate.

A spokesman for Singapore’s foreign ministry said in a statement on Tuesday that all parties involved in the crisis must continue dialogue to reach a peaceful settlement and avoid any action that would further escalate tensions.

Earlier this week, several European airlines suspended flights to and from Ukraine, citing security concerns amid the escalating conflict. The International Air Transport Association previously noted in January that most airlines were already avoiding airspace around affected regions in Ukraine following earlier tensions.

The Straits Times examines the impact of the Ukraine crisis on prices and how Singaporeans could be affected.

1. Rising food inflation

Analysts have warned that developments in Ukraine could impact the outlook for inflation and prices of staple foods such as wheat and corn could rise sharply.

Ukraine is the world’s third-largest corn exporter and fourth-largest wheat exporter, while Russia is the world’s largest wheat importer.

Any disruption in food supplies outside the region could further fuel food inflation – global food prices jumped 28% in 2021 to their highest level in a decade.

Invesco’s chief global markets strategist, Kristina Hooper, said in a note that prices for wheat and corn, as well as other commodities such as palladium, are expected to rise.

Food inflation was a key driver of consumer price inflation in Singapore in January, rising 2.6% year-on-year due to higher uncooked food inflation and prepared dishes.

2. Rising Electricity Costs

High energy prices have plagued global markets, with gas hitting record highs in recent months.

With Europe heavily dependent on Russian gas transiting through Ukraine – Russia supplies Europe with around 40% of its natural gas supply – energy markets could also be affected.

European gas benchmarks and electricity prices in major European cities have increased since the beginning of the year with the worsening of the Ukrainian crisis.

Singapore relies heavily on natural gas for electricity generation, and any impact on global gas prices could lead to higher electricity prices for the Republic in the future.

Electricity and gas inflation in Singapore hit 17.2% in January due to a higher increase in electricity and gas tariffs.