According to economist Žídek, who also works in the Department of International Relations at MU’s Faculty of Social Studies, prices of commodities such as oil or natural gas can be expected to rise as these commodities are traded in world markets. And they are now in great uncertainty, and physical constraints on Russian supplies will no doubt affect prices. However, an expert from the Faculty of Economics and Administration believes that major oil producers like Saudi Arabia will most likely increase supply to the world market in order to stabilize the situation a bit, as they are not interested in strong price fluctuations.
How dependent is the Czech Republic on imports of oil, gas and fuel from Russia?
In general, the Czech Republic buys raw materials on world or European markets, but in practice often from Russia, which last year supplied about half of the Czech Republic’s oil imports and most of its gas . Russia’s share in oil imports has been declining for a long time, but it has increased in gas. That is why it is important that the Czech governments connected the country to the European market after 1989, for example via the Ingolstadt pipeline. Aluminum and chemical raw materials also come from Russia. In addition, we import a large part of the iron ore from Ukraine. And Russia and Ukraine are also major grain producers – up to a quarter of world production.
Could a possible halt in supplies from the Russian Federation and the tightening of sanctions mean a dramatic increase in prices and a depletion of oil, fuel and gas reserves? And does the Czech Republic have the possibility to replace these breakdowns with supplies from other countries?
It would certainly be possible to substitute the supply of raw materials from other territories. However, this encounters technical problems, since Czech refineries are prepared for a certain chemical composition of oil. Terminals must be built to receive liquefied natural gas, for example from the United States or Qatar. Poland, for example, has opted for the terminal, but the price of this energy security is, of course, a higher price, because liquefaction is technologically demanding. But I personally always thought that we should pay this price rather than depending on Russia. It’s good that winter is coming to an end and the need for gas is less. If there were a natural gas shortage crisis, the industry would likely be constrained at first.
Will Czech exporters be affected by the sanctions imposed by the European Union on Russia?
Sanctions will undoubtedly affect our exporters, both European export sanctions and Russian import sanctions, which will seek to target our exporters. A trade restriction or complete collapse will have a potentially very negative impact on some businesses, but certainly not on the economy as a whole. Contrary to expectations, exports to Russia represent only about 2% of Czech exports! The impacts will be felt on Budvar or Plzeňský Prazdroj, which no longer accepts any orders from Russia in response to the situation. Most important for the Czech Republic is the market within the EU, where about 85% of exports go. Furthermore, I fear that the situation will have a negative impact on Škoda Auto, which has two production plants in Russia, as well as on PPF, which has become heavily involved in the local market.
Overall, what can we expect economically from the current situation?
The current situation will undoubtedly have a negative effect on our economy. However, I would like to remind you that the Czech Republic is a developed and rich country that has a higher GDP per capita than Italy or Spain. The Czech economy should withstand problems, among other things, precisely because of its focus on Western European partners.
At the same time, almost everyone can be expected to accept an increase in government defense spending to 2% of GDP, which is our commitment to NATO and which we have failed to meet long term. This transfer has already been difficult for governments, but will now be even more so in a tight budgetary situation. I am not in favor of state intervention, but the state should ensure that the effects of rising gas prices do not affect the poorest in the country too much. However, I am definitely against widespread price interventions. Such interventions will do far more harm than good. I believe that our large and relatively wealthy middle class is able to withstand rising prices and that the whole economy should be able to withstand the situation. At the moment, however, it is much more than unpleasant economic effects and price increases – these are the values on which Europe and the European Union stand – as evidenced by the great wave of solidarity that we can see today.
MUNI HELPS UKRAINE. Ukrainian students and scholars can be supported with educational and humanitarian aid. The financial contribution can be made in the form of a donation through the MU shopping center. Information on the currently donated amount can be found on the MUNI POMÁHÁ website.