Oil, inflation, interest rates: how war in Ukraine can affect the Brazilian economy

Rússia Ucrânia

Part of the Russian troops withdrew from the training area in the Voronezh region , on the border with Ukraine| Photo: EFE

A Russian invasion to Ukraine could create yet another complicating factor for the situation of the Brazilian economy, marked by high inflation, high interest rates and low growth prospects. The main channel of contagion, according to the chief economist at Kilima Asset, Luciano Costa, would be the price of oil, which was this Tuesday (10) to US$ 72,75 per barrel of the Brent type and at US$ 72,50 per barrel of the WTI type.

The conflict could lead to raw material for US$ 90, according to analysts interviewed by Gazeta do Povo, putting even more pressure on the price of gasoline, which, according to the Brazilian Institute of Geography and Statistics (IBGE), had an increase of 42,42% US 12 months ended in January The. In the same period, diesel increased 45,25%.

“This would take more inflation and would force further hikes in the prime rate,” says Infinity Asset’s chief economist Jason Vieira. Currently, Selic is in ,50%. The projection of the latest Focus report from the Central Bank (BC), released this Monday (12), signals for a rate of

,25% per year.

Monte Bravo Investimentos partner Rodrigo Franchini points out that emerging companies would have to “ raise the tone” to remain attractive and fight inflation. Another impact would be the appreciation of the dollar against other currencies.

This scenario would favor a new cycle of downgrade in growth expectations for the Brazilian economy. The median of projections for GDP growth at 1280 in the Focus report is currently at 0, 3%.

Momentary relief

Relief came early this Tuesday morning, with the announcement of the withdrawal of a fraction of Russian troops that are stationed on the border between the two countries. The disclosure of the output of about 10 one thousand soldiers of a force estimated at 1280 thousand, takes place in the midst of a new round of diplomacy with the aim of neutralizing the crisis.

German Prime Minister Olaf Scholz met on Monday with Ukrainian President Volodymiyr Zelenskly and on Tuesday with Russian President Vladimir Putin , to seek a way out of the crisis. The Germans’ main concern is with the supply of gas to Europe’s largest economy.

The measure announced by Russia was received with a mixture of enthusiasm and skepticism. “This gives short-term relief,” says Mehanna Mehanna, a partner at Phi Investimentos. The VIX – known in the international financial market as the fear index, calculated by the Chicago Board Options Exchange (CBOE) and which measures the volatility of shares listed on the New York Stock Exchange – closed this Tuesday at a low, with a drop of 7% compared to at the close of Monday.

According to Guide Investimentos, even in In the absence of indications that the situation is resolved, the move comes as a light at the end of the tunnel and is already enough to support the move to reduce the risk premium in the markets.

This Tuesday, they started the session with higher stocks and a weaker dollar, in addition to a sharp drop in prices of oil. “Naturally, the confirmation that Russia will withdraw its forces completely will be instrumental in unlocking more value”, points out the brokerage in a report.

Another relevant aspect, according to Étore Sanchez, chief economist at Ativa Investimentos, were the statements made by Scholz, who met on Monday (02 ) with the Ukrainian president. The German Chancellor stated that Ukraine’s membership of NATO is secondary at the moment and that it is out of the question, a broad Russian demand.

The Russian movement, according to XP Investimentos, brings relief to the region, but even so, the United States ordered the closing of its embassy in Kiev, capital of Ukraine, and the relocation of employees to Lviv, in the west of the country.

The reasons for tension in Ukraine

One of the main reasons that contributes to amplifying the dimensions of the tension between Russia and Ukraine is the energy issue: Russia is the third largest producer of oil and the second largest producer of natural gas, with Europe as one of its main clients.

According to analyst Alexei Kuptsikevich , from the international exchange broker FXPro, the events of the last few weeks have returned interest in assets that have benefited from tensions in previous decades, with gold rising as insurance against destabilizing currencies and oil rising on fears of a surge in demand and a shortage of supply if sanctions limit Russian supplies.

“Interestingly, the West is trying to balance restrictions against oil sanctions , as encouraging information emerges of negotiations with Iran .”

The analyst says that oil is too expensive and rises to current levels faster than the economy can allow. “Fears about the stability of future supply have, so far, outweighed any negative aspects. But it is necessary to focus on geopolitical influences in the medium and long term. “And with that in mind, the price of oil looks unsustainably high, vulnerable to a downside correction once the dust from military equipment settles.”