China, March 9, 2022 — cyberinktimes.com — The math is brutal and it lands on four countries already running on empty. China, Indonesia, South Africa and Turkey — each still clawing out of the COVID slump — now face a one-percentage-point slice off their 2022 growth. The cause is a war premium that has shoved a barrel of Brent crude from US $65 last autumn to above US $127 as of Tuesday.
That is a doubling. That is roughly US $60 added by the Russian invasion of Ukraine.
World Bank vice-president Indermit Gill put the number in a blog post on 8 March. It is the Bank’s first quantified estimate of how the war is hammering commodity-importing developing economies. The rule of thumb the Bank uses in its forthcoming Global Economic Prospects report is plain: every sustained 10 % rise in oil knocks 0.1 percentage point off growth in import-dependent emerging markets.
Prices have climbed about 100 %. So the hit approaches a full point unless the rally reverses.
Pre-war forecasts had China expanding 5 % this year. Indonesia also at 5 %. South Africa at 2 %.
Turkey at 2 to 3 %. A percentage-point haircut, Gill wrote, “means millions of jobs that won’t be created and budgets that won’t balance.” Take China. It is the world’s top crude buyer.
It imports 73 % of the 14 million barrels it burns every day. Customs data shows each US $10 increase in the annual average price adds roughly US $25 billion to the country’s import bill.
That is a hard number. And Beijing faces a double squeeze. State refiners have so far resisted passing the full cost to motorists.
They trimmed their own margins instead. That keeps pump prices politically tolerable.
But it erodes profits at China National Petroleum Corp and Sinopec. Both were already carrying heavy debt loads before the war started. Indonesia imports roughly half the oil it uses.
The government there subsidizes fuel to keep prices stable. Those subsidies are budgeted at about US $4 billion for 2022. Every US $10 jump in the annual average price blows a hole in that number.
The finance minister has already warned that the subsidy bill could double if prices stay where they are. That means less money for infrastructure, health care, schools.
South Africa is a net importer of oil and petroleum products. Its economy was forecast to grow 2 % this year. One point of that is now at risk.
The country also imports wheat from Ukraine and Russia. That supply chain is broken.
So the oil shock is not the only one. It compounds. Turkey imports almost all the oil and gas it uses.
The lira lost 44 % of its value against the dollar last year. That already made energy imports brutally expensive. Now oil has doubled.
The central bank has been cutting interest rates on President Erdogan’s orders. Inflation was already above 50 %.
The oil shock pushes it higher. The growth forecast of 2 to 3 % now looks optimistic. The timing is cruel.
These four economies were just expected to regain pre-pandemic output levels. The war erased that expectation.
The oil price spike did not cause the war. But it is the mechanism through which the war reaches the wallets of people in Jakarta, Johannesburg, Ankara and Beijing. Gill called the jump “more than enough” to trigger the rule of thumb.
He is the World Bank’s vice-president. He wrote the blog. The numbers are his.
A percentage point sounds small. It is not small.
It is millions of jobs. It is budgets that will not balance. It is growth that will not happen.
The war premium added US $60 to a barrel. That premium may persist.
If it does, the math holds. The growth is gone.
