The global fuel crisis, which has unfolded against the backdrop of the war in Iran, is having a price impact on Ukraine’s economy; however, it will not significantly affect economic activity as long as there is no fuel shortage, according to Natalia Shpygotska, a senior analyst at Dragon Capital.
“We expect GDP growth this year to reach 1.5%. And specifically regarding the fuel crisis, we do not expect rising fuel prices to have a significant impact on economic activity until global turbulence leads to a significant fuel shortage in the country,” she noted during the Center for Economic Strategy’s April economic review, which featured the special topic “How is the fuel crisis affecting the Ukrainian economy?”
“As for inflation expectations, our current year-end inflation forecast is 7.1%. We revised it upward by 0.8 percentage points compared to the previous forecast, in part to account for rising fuel prices, as well as our revision of the exchange rate,” Shpygotska added.
According to her, Dragon Capital’s forecast is based on the assumption that in the coming months, the war or hostilities regarding Iran will be suspended, allowing global oil prices to stabilize at a level closer to $70 per barrel. At the same time, if global oil prices remain high for longer and hover around $100 per barrel throughout the year, this will carry the risk of inflation in Ukraine rising by 2 percentage points, “that is, closer to 9%.”
Shpyhotska also noted that the transportation sector was the first to be directly affected by rising fuel prices, particularly the nearly 50% increase in diesel prices, resulting in higher transportation costs for both major economic players and companies providing transportation services.
Although, as the Dragon Capital analyst noted, the rise in prices for transportation services is not yet proportional to the rise in retail diesel prices, it is nevertheless present.
At the same time, she noted that in other sectors, particularly the agricultural sector, where transportation costs account for up to 10% of total expenses, the impact on financial results may not be as significant.
“However, if high oil prices persist longer and we begin to see second-order effects—such as rising prices for fertilizers and other components of production costs, as well as the passing on of higher transportation costs to other goods and services—the long-term impact could be more pronounced,” the analyst noted.
Natalia Kolisnichenko, a senior economist at the Center for Economic Strategy (CES), reported that according to a survey of businesses and companies, 9% of them did not feel the impact of the fuel crisis, while 66% felt a significant or moderate impact, noting that it was primarily price-related.
“76% reported that their transportation and logistics costs had increased first and foremost, while 53% reported that they had not experienced any disruptions in their operations. This also confirms that the main factor for us right now is price-related. 20% of businesses have already passed on increased production costs to consumer prices, and the rest plan to do so in the near future, as businesses lack the resources to keep prices unchanged,” said the CES senior economist.
According to her, inflationary risks are rising for all goods and services, as they all have a fuel component.
She also added that 24% of the surveyed companies have not yet been able to assess the impact of the fuel crisis.
