Wednesday, March 30, 2022 | Category: Eduvation Insider, Ukraine
Good morning, and happy humpday!
(Today you can also celebrate Doctors, Pencils, and Manatees, or simply Take a Walk in the Park.)
Yesterday I started to look at the economic repercussions of Russia’s invasion of Ukraine and the global sanctions it sparked, with a look at the disruptions to international trade and global food supplies in particular.
In and of themselves, those ripple effects will cause widespread suffering and geopolitical tensions far beyond Europe, and for PSEs, may well impact everything from transnational education to IT purchasing.
But the single most crucial geopolitical economic factor has long been energy. (Indeed, Thomas Homer-Dixonhas argued that it was an energy crisis of sorts that brought down the Roman Empire – a food shortage for its troops – and that it will ultimately be an energy crisis that brings down the American Empire too.)
Today, part 2 looking at the economic impacts of the War in Ukraine, and what it might mean for higher education…
Russia’s invasion of Ukraine has nothing to do with petrochemical resources – but the massive revenues from Russian oil and gas sales made the war possible…
Russian petrochemical exports are the key driver of 60% of Russia’s GDP and 45% of its government budget, and for decades the ruble has fluctuated with global demand for oil, natural gas and coal. Yet Western sanctions attempting to pressure Putin have left massive loopholes for oil and gas, largely because Europe depends upon Russia for 40% of its natural gas needs. The International Monetary Fund estimates that the 2014-18 drop in global oil prices hurt Russia’s economy 3x more than all the sanctions imposed after Russia’s annexation of Crimea. That’s why Putin announced last week that “unfriendly” countries (like Canada) will have to pay for gas and oil in rubles, effectively forcing the West to bypass its own sanctions and buy Russian currency. (On Monday, G7 countries rejected Moscow’s demand as “a one-sided and clear breach of the existing contracts.”)
“Putin’s understanding of what decarbonization would mean for Russian energy exports in the medium and long term may be a factor in the timing of Putin’s attack on Ukraine now.” – Rachel Kyte, Law & Diplomacy dean, Tufts U
Germany is particularly vulnerable, depending on Russia for 55% of its natural gas and 35% of its oil. Harvard economics prof Kenneth Rogoff thinks Germany is regretting its “historic” mistake of shutting down nuclear reactors to depend on Russian gas instead (and he points out that Biden’s decision to shut down the Keystone XL pipeline now looks like “awkward” timing). German chancellor Olaf Scholtz is walking a political tightrope, with the majority of the country’s west supporting more aggressive sanctions of Russian energy, and the majority in the former communist east equally opposed. (Economists are divided about what the potential impact could be, but it would be a contraction at least as significant as the 2020 pandemic.) Germany’s economics and climate minister is quietly seeking deals with Quatar and the UAE to provide alternate sources of natural gas. Meanwhile, one German academic points out that “statements about mass unemployment and GDP loss give confidence to Russian leadership, gives them leverage, and gives them the sense that they have a powerful tool on their hands.” Washington Post
Russia was “weaponizing” natural gas even as it prepared to invade Ukraine: Putin dropped natural gas supplies to Europe by one-quarter early this year. Energy watchdogs pointed out that would cause a “seismic upheaval of the EU energy market” and would shift Russia from a reliable partner to a serious threat. Then in early March, Putin warned that Russia has “every right” to embargo the sale of natural gas to Europe – but so far that remains an empty threat.
“There is a geopolitical price tag that comes with cheap Russian pipeline gas, and it is very high.” – Maria Pashtukova, senior policy advisor, E3G Berlin
As Western U prof Brandon Schaufele observes, Putin’s invasion of Ukraine has renewed global focus on the importance of energy security…
The Western boycott of Russian oil and gas was far easier for North America to impose, than for EU countries. Russia supplies just 3% of Canada’s crude oil imports, and 7% of America’s. Despite its dependency, Germany moved to block certification of Gazprom’s $11B NordStream 2 natural gas pipeline back in February (after its construction was complete), to sanction Russia’s earliest signs of invading Ukraine. The EU has just made plans to cut dependency on Russian gas by two-thirds this year, and to zero “well before 2030.” Multinational energy companies BP, Shell and Equinor have walked away from multi-billion-dollar stakes in Russian oil and gas that have been built over 30 years. (The only likely buyers may be Russian or Chinese state-owned companies.)
“If in this moment politicians can finally articulate that some things are worth paying for—whether it be democracy or a livable planet—it will be a watershed.” – Justin Worland, writing in TIME
Oil and gas prices were rising after the pandemic, but they have skyrocketed in the wake of Russia’s invasion of Ukraine – and boycotts of Russian supplies will keep them aloft for some time. Crude oil prices have risen 50% since last year, and a World Economic Forum expert predicts “we are in for a prolonged period of expensive energy.” Drivers for Uber and Just Eat are on strike in Europe, as fuel costs make their gig work unsustainable. (York U prof emeritus Mark Winfield points out that governments must be vigilant against war profiteering.) Canadian prices at the pump have reached all-time highs, but there is an upside: the Conference Board of Canada calculates that Ottawa and provincial governments will gain $10B annually from increased commodity prices.
Alberta premier Jason Kenney would like to become a “major force for global stability” by displacing “conflict oil” from Russia and other dictatorships. (Queen’s U business prof David Detomasi points out that “of the world’s top 10 oil producers, only 3 are democracies,” and an argument can be made that oil actually “hinders democracy.” Former Green Party leader Elizabeth May says sowing fear over oil and gas supplies is “crass opportunism.”) Although Alberta has the third-largest reserves in the world, getting oil and natural gas to the coasts and shipping it to NATO allies in Europe would require years of infrastructure development. Kenney admits “it’s unlikely that there’s anything we can do to alleviate this crisis” but he would like to position Alberta to be prepared for the next.
“Kremlin strategists are keenly aware that in the longer term, the global move to net-zero threatens the whole basis of Russia’s economy and global influence.” – Fiona Harvey, The Guardian
Travel and Tourism’s post-pandemic recovery will be set back even further, observes the Conference Board of Canada, as geopolitical instability and currency fluctuations blunt the leisure travel market in particular. (Conversely, with skyrocketing fuel costs driving higher airfares, consumers may rush to buy flights early.) The tourism sector in Europe and North Africa will take a significant hit from the loss of “big spenders” from Russia.
Bargain prices on yachts and luxury real estate may be had, though, as Russian oligarchs are forced to sell assets, or authorities auction off seized assets. “These sales might represent a bargain for some people in the west.”
The Ukraine crisis is simultaneously sparking more urgency to expand fossil fuel production, while underscoring the crucial importance of the shift to carbon-neutral energy…
Fossil fuel expansions to diversify and secure energy supplies may be an obvious response to the war in Ukraine, and will be encouraged by the petrochemical industry – but would be incredibly short-sighted, too, at a time when climate change is causing unprecedented droughts, floods, and extreme weather. “Addiction to fossil fuels is mutually assured destruction,” tweeted UN Secretary-General António Guterres, and elected officials from 30 countries (including Canada) have signed on to the “fossil fuel non-proliferation treaty.” YorkU environmental studies prof Tzeporah Berman argues that “electrification and renewable investment are cheaper, safer, quicker, and don’t lead to violent conflict or explode when bombed.” (Canada is already expanding production and falling short of its climate commitments.) But as Maciej Kolaczkowski points out, “energy security and affordability are back at the top of the agenda. It seems that climate change and sustainability are not the number one priority anymore.”
“Energy security and affordability are back at the top of the agenda. It seems that climate change and sustainability are not the number one priority anymore.” – Maciej Kolaczkowski, World Economic Forum
Green energy initiatives may ultimately accelerate as the West tries to cut its reliance on Russian oil and gas, and traditional carbon-based energy prices make green alternatives look more cost-effective. Demand for electric cars was already rising in the wake of the pandemic; now they are back-ordered for months. Germany is reportedly looking at speeding up its target of 100% renewable electricity by 2040, to aim at 2035. A global shift to green energy could have a massive “peace dividend.” As one German climate activist put it at Harvard: “We need to end the fossil-fuel era not just for the climate, but for building stable and sustainable democracies that won’t depend on autocrats.” As futurist Bryan Alexander suggests, we could start to see “climate action as a potential geopolitical weapon.”
“Peace and climate justice have never been so closely linked.” – Helena Marschall, co-founder,Germany’s Fridays for Future
Then again, the war in Ukraine could set back sustainable energy efforts in other ways too…
Crucial metals used in the manufacture of solar panels, wind turbines and EV batteries are sourced in Russia and Ukraine, from copper, nickel, and platinum to cobalt, palladium, aluminum and lithium. (Russia provides 7% of the world’s nickel and a third of its palladium.) Supplies have obviously been disrupted by the conflict, and political factors could interfere with future pricing and availability. In response to the Ukraine conflict, the US and Australia are pushing for domestic resource exploration and manufacturing, and nickel mining is expanding in the Philippines. Although the US has only one active lithium mine, in Nevada, demand is expected to grow 600% by 2030, so new mining projects are underway from Maine to California. (The challenge is that open pit mines and brine extraction have terrible environmental consequences, even though EVs are intended to help us achieve carbon neutrality.)
Biodiesel supplies may be constrained, on the other hand, as grains diverted to fuel production may be needed to feed the world’s populations. (US corn has been diverted for ethanol, and EU palm and soybean oil for biodiesel.)
As though the world wasn’t anxious enough, tentatively emerging from a global pandemic, the war in Ukraine has introduced a whole new level of economic and geopolitical anxiety…
Defense spending may become a bigger priority in Canada and other NATO nations, warns the Conference Board of Canada. The West has finally lost the “peace dividend” it has enjoyed since the end of WW2, the Korean War and the Vietnam War – and Harvard economist Kenneth Rogoff thinks the US and Europe are likely to spend an extra percent or two of GDP on defense for years to come. Certainly, Germany has committed $111B to immediate military spending, and plans to raise defense spending above 2% of annual GDP. Cornell economist Erica Groshen expects defense and cybersecurity contractors to prosper in the near term, and aerospace stocks have already rallied.
Consumer price inflation will soar around the world, not just in Russia, as geopolitical disruptions and sanctions compound pandemic supply chain issues, observes the Conference Board of Canada. Gas prices, price inflation, and rising interest rates are having a direct impact on consumer confidence: as Western U prof Bonnie Simpson puts it, “It doesn’t matter that we saw it coming, we’re still surprised by it.” Consumer unease is slowing the post-pandemic recovery.
“It doesn’t matter that we saw it coming, we’re still surprised by it.” – Bonnie Simpson, prof of consumer behaviour, Western U
A Global economic downturn could result from economic sanctions and all the repercussions outlined above. Stock markets have taken a beating, a European recession looks “almost certain,” forecasts for global growth have been slashed, and the odds of a US recession have been pegged at “one-in-three.” China was forecasting a robust 5.5% economic growth in 2022, before a resurgent pandemic, lockdowns and uncertainty about the Ukraine crisis hit like a perfect storm. China’s economy is at a crossroads, and “without predictability, there’s no investment.” A Bloomberg article anticipated that rising energy prices or supply disruption from Russia could ultimately fuel a recession in Europe, with repercussions worldwide.
Canadian unemployment may rise in response to inflation and slowing economic recovery, warns the Conference Board of Canada, but the agriculture and resource sectors will enjoy higher prices and profits: the Bank of Canada’s “Canadian basket of raw materials” jumped 52.6% last year, and is up by another 48% already this year. “Unless Putin is overthrown, the sanctions are expected to persist,” leading to a “net impact on Canada that is almost neutral: just slightly positive in 2022 but turning negative in 2023,” as inflation and higher interest rates “eat away at household spending” and the war “impacts demand from our trade partners.”
Yesterday I summarized some implications for PSE driven by economic repercussions of the war on Ukraine, including challenges for globalization, advancement, industry partnerships and IT sourcing. Here are a few more, based on the trends outlined above…
Energy Sector Boost
Russia’s chokehold on oil and LNG supplies in Europe will spark minerals exploration, petrochemical production, and alternative energy research and expansion throughout the West. (The duration of the energy crisis, and political responses to it, are still to be determined.) This will likely “fuel” an explosion of applied research partnerships between PSEs and the energy sector, likely supported by government initiatives and funded by fuel tax revenues. Courses and programs to prepare and upskill workers in a range of sectors will likely also proliferate. (For example, just yesterday College of New Caledonia announced a new EV Technology & Safety course, to upskill working automotive techs.)
As NATO countries like Canada ramp up their spending on defense, obviously less budget will be available for other PSE priorities like infrastructure spending, research or student assistance. And while petrol-rich provinces like Alberta and Newfoundland may enjoy a boost to their revenues due to rising market prices for oil and gas, they may not pass those winnings along to PSE in the form of increasing operating grants. In fact, NL has already made it clear that unfreezing tuition is expected to fund rising costs for Memorial U and CNA, while Alberta has suspended its gasoline tax to give $1.3B back to Alberta motorists instead. (So I wouldn’t hold my breath!)
Extreme escalations in the cost of land and air travel and transportation will further undermine international mobility for scholars and students, and may well encourage Zoom meetings and hybrid conferences even once the pandemic is well behind us. If high prices impact the global tourism market, it will also further depress student interest in tourism-related programs.
Rising fuel costs will raise institutional costs for everything from construction and equipment purchases to employee travel and campus dining provisions. Rising interest rates and consumer price inflation will not only mean more pressure on institutional budgets, but more pressure from employee unions for cost-of-living adjustments and pay raises. The post-pandemic labour crisis (see my recent issues on Labour Strife and Mediation) will be intensified and prolonged in the wake of the Ukraine crisis. Bain & Co consultants observe that strategies to cope with inflationary cycles include centralizing information systems, streamlining processes, utilizing intelligent document processing and AI chatbots, and focusing capital spending on key strategic priorities. (You also benefit from “high resolution spending visibility” by process, function and unit – but be sure you’re cutting only in non-strategic areas. Successful organizations “out-invest competitors, at scale, on strategic costs in both good and bad times.” You want to be “best in class,” not just “best in cost.”)
Even if prospective international students have overcome their concerns about the pandemic or the dangers of travelling during a major European war, global sanctions have decimated the ruble and other currencies indexed to it. Some foreign student markets may be priced out of CdnPSE in the short term.
If world economies experience a downturn or recession, this may have a negative impact on student mobility. Colleges and polytechnics, at least, may experience a counter-cyclical boost to enrolment, though, if unemployment rises again. And it’s possible that online learning and microcredentials could get another boost, due to their affordability.
In many ways, the West’s “economic excommunication” of Russia could trigger a geopolitical realignment, bifurcating the world and intensifying Moscow’s partnership with Beijing.
It will probably take me a few days, but stay tuned for an exploration of the larger geopolitical repercussions of the war on Ukraine…
Australian higher education has long been particularly welcoming to international students, and this fun video is a nice example of what can be achieved through rapid cuts and upbeat rhythm…
No Matter Where You’re From…
uAdelaide is “a place that unites and serves those striving to change the world – and themselves – for the better,” and this largely silent little :45-sec “Welcome” video includes multilingual type greetings, dynamic edits and transitions, a peppy drumbeat, and some well-placed humour to convey a sense of a diverse students, faculty and staff who are clearly enjoying their experience on campus. “No matter where you’re from, or where you’re going, there’s no better time to make history at the uAdelaide.” YouTube
As always, thanks for reading!
Do drop me a line if you have thoughts or observations about other potential PSE impacts of these economic repercussions. Like most emerging shifts, my readers will likely spot them “in the trenches” before I read about them in my sources.
Tomorrow, I’ll take another look at the spectrum of ways CdnPSEs are supporting students and scholars from Ukraine, Belarus, Russia and the region – from mere gestures of support to financial aid, streamlined processes, academic compassion, and more…
Meanwhile, stay safe and be well!
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