The impact is not yet clear. But the conflict between Russia and Ukraine is already greatly agitating the markets and the consequences on the world economy, already disrupted by the pandemic, will be imminent.
The price of energy , all on the rise, has become the main signal of nervousness in the markets. And Mexico, an almost absolute importer of natural gas and a major buyer of gasoline , will also see some repercussions, although analysts are still unclear on the size of the impact. That, they say, will only be known day by day, as the threats from the countries involved materialize.
The economic scope of the armed conflict becomes tangible in the international increase in the price of commodities, mainly in grains –such as corn and wheat– and in energy. The blow for Mexico will be in the second category. “The biggest impact on the agricultural market is going to Europe and the one we are going to receive will be through energy,” says Luis Gonzalli, co-director of investments at Franklin Templeton, a firm based in San Mateo, California.
Perhaps the greatest sign of nervousness in the markets can be seen in the price of Brent crude oil , the main reference mixture that yesterday exceeded 105 dollars, its highest price since 2014 and the expectation of analysts remains with an upward trend for the next days. US analysts are forecasting that it will even reach 120 dollars per barrel, according to what has been broadcast on local television.
And in that tone, Mexican crude also increases, the Mexican mixture closed yesterday at 90.52 dollars per barrel. It is also its highest price since August 2014, according to Banco de México records.
And with this, Mexico faces two scenarios: an increase in its income from exports –although they have been reduced as part of the presidential policy– and a higher price of gasoline. The Ministry of Finance has already taken the incentives to the consumer for the purchase of gasoline to the top. Since last week, the federal government decided to absorb the entire Special Tax on Production and Services (IEPS) on regular gasoline and has left the incentive for premium at 82.75% and that of diesel at 88.46%.
Now all the increases will remain with users, analysts say. “That is obviously going to put pressure on inflation, but it will also benefit a little because we are oil exporters,” explains Gonzalli. The Treasury will not be able to increase the amount of stimuli because for this they would have to make legislative changes to the Income Law, a solution that is not foreseen in the short term and with a high cost for public finances. And with it, the presidential promise not to increase the price of fuels above inflation falters.
Gas shortage?
This afternoon regular gasoline imported from the United States to the country was sold for up to 14.30 pesos per liter, almost 26 cents more than yesterday. On January 3, the first price of the year, gasoline was sold at 11.74 pesos per liter, according to data provided by OPIS, a fuel price agency. The impacts for final consumers could be seen in the short term, when marketers begin to replenish gasoline currently in stores. Analysts already foresee a drop in consumption for fear of a greater economic crisis and that could again stop the economic recovery from the crisis caused by the pandemic.
Russian President Vladimir Putin has ruled out shutting down oil and natural gas supplies on which much of the European Union depends. But the markets are preparing for the worst, after the Russian intervention on Ukrainian lands. “The drums of war are sounding louder and louder in Europe. The central scenario for such an outcome is the energy markets, where oil and natural gas prices have become the barometer of fear of the crisis”, says Norbert Rücker, Head of Economic Research and Next Generation Research at the Swiss private bank. Julius Baer.
The analysts’ conclusion is simple: Mexico will not run the risk of suffering in the supply of gasoline, but it will see a constant rise as in the rest of the world and the pressure on the prices of all services and products will be imminent. Inflation will not let up.
natural gas
There are conflicting positions, some assure that Mexican consumers are shielded due to the strong development of infrastructure between the southern United States and Mexico, and that, despite a greater European demand, the supply to the country will be maintained due to the simplicity of logistics.
And there are those who believe that sales to the country will be reduced if Europe decides to turn to the US market to buy liquefied natural gas. The reason: European customers could offer a better price than Mexican ones.
“Natural gas has a higher supply risk, because liquefied natural gas tanks may go to Europe because higher prices will be offered (…). Mexico has two advantages, it is not a large importer of liquefied natural gas and its proximity [to the United States] helps”, says Fernando Valle, an analyst at Bloomberg Intelligence.
But both parties expect a natural rise in price, although not compared to what is experienced in Europe, where natural gas futures prices have risen by up to 50% in just one day, after the Russian intervention.
“For Mexico to continue importing the same amounts, you need to be paying the price that Europeans pay,” says David Rosales, an industry analyst. “The gas that we buy is received mainly by pipeline, but that is because we are close. If the United States decides to send more by ship to other countries, naturally it will be replaced by what is now sent by ship.”
More than half of the electricity in Mexico is produced by natural gas, on which it has been decided to base the energy matrix because it pollutes less than other fossil fuels and its price is lower.
Meanwhile, Europe, which buys about 40% of its gas from Russia, is already looking to other markets for supplies, but for now Midwest producers such as Qatar and Saudi Arabia top the list to substitute supply from Russia.
But those price hikes won’t be on par with what happened in February of last year, when winter storms in Texas left the country without a gas supply. “Natural gas prices are increasing, but the increase in Mexico cannot now be compared to Europe,” says the Bloomberg analyst.
Mexico has other sources of electricity generation, such as renewable plants or power plants that work with coal and fuel oil.
But the second plants use more expensive fuels than gas, analysts say. And only an exponential increase in the price of the latter would make this option profitable, mentioned by the president yesterday in his morning conference.
It is still impossible to determine the magnitude, they explain, but the increase in the price of electricity generation, and with it in the rates, would be almost imminent.
In the long term, US gas producers could prioritize the development of projects to increase shipments of liquefied natural gas – gas that is subjected to another process to be shipped by ship – to Europe, and that would leave the Mexican market in second priority. .
By nature, analysts say, the European market could offer better pay, and national buyers – such as the state-owned CFE and some private companies – will have to approach or better the offer.
But regardless of the percentage increase in fuel prices, the effects will push up, at least temporarily, the prices of raw materials and final products. Industries, such as the steel and chemical industries, are large consumers of natural gas.
And with it the great efforts of governments and central banks to contain inflation could fall short. Analysts also expect a drop in consumer confidence, who may again take precautions and cut their spending, replicating what happened during the height of the pandemic.
