By Natalia Kidd
Buenos Aires, Mar 4 (EFE).- The ongoing war in Ukraine is taking a toll on the global economy and is a particular threat to Argentina, a country already battling high inflation and an energy deficit that is vulnerable to soaring oil and natural gas prices.
On the one hand, Argentina stands to benefit from sky-high prices for wheat and corn, two commodities of which Ukraine is a major world producer and exporter.
Possible sanctions on Russian food could further crimp supply considering that country is the world’s largest wheat exporter. Moscow also could limit those exports in retaliation for severe financial sanctions imposed by the West.
And high wheat and corn prices could have a domino effect on the value of other agricultural products such as soybean oil and flour, of which Argentina is the leading global supplier.
Low production volumes due to expected adverse climatic factors, however, could prevent Argentine farmers from taking full advantage of those price hikes, while the economy as a whole faces the risk of a further jump in the inflation rate (which came in at 50.9 percent in 2021).
“We’re going to have more inflation in the short term. But while neighboring countries are starting out with single-digit inflation, Argentina is (facing this new crisis) with a floor of 50 percent annual (inflation) and won’t be far from 60 percent,” Leonardo Piazza, director of LP Consulting, told Efe.
He said that Argentina, due to its macroeconomic imbalances, is the Latin American country most vulnerable to the impact of the war in Ukraine.
One of the biggest headaches Argentina faces in economic terms is a sharp spike in the price of hydrocarbons, particularly of liquefied natural gas (LNG).
Argentina is a crude oil and natural gas producer, but because its current output is insufficient to supply domestic demand (even with the massive Vaca Muerta shale formation being developed) it now must import natural gas from Bolivia and LNG from different parts of the world.
LNG prices, meanwhile, have skyrocketed due to fears about disruptions to the supply of oil and natural gas by Russia, one of the world’s leading hydrocarbon producers and exporters.
Luciano Codeseira, director for Argentina of the Gas Energy Latin America consulting firm, told Efe he estimates that LNG imports will cost Argentina $3.9 billion this year, or more than triple the $1.1 billion its spent in 2021.
The country’s energy deficit, meanwhile, will climb to around $2.8 billion this year even with an increase in Vaca Muerta oil exports, the expert said.
A greater energy shortfall would further batter a country with dwindling hard currency reserves and a large budget deficit that is now seeking final approval of a deal with the International Monetary Fund to refinance some $45 billion in debt.
Argentina’s budget commitments with the IMF include slashing large energy subsidies and allowing an increase in gas and electricity rates, a goal made more challenging since Russia’s invasion of Ukraine.
The IMF staff-level agreement announced Thursday calls for Argentina to gradually decrease its energy subsidies and develop a plan over the mid-term to promote energy investments, including the construction of natural gas pipelines and the expansion of its LNG and renewable energy capacity. EFE