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QIC warns conflict with Russia may see a return of Cold War trading blocs

The Ukraine crisis could result in a re-ordering of global trade with China switching its energy supply from countries like Australia to Russia, according to the Queensland Investment Corporation.

Feb 28, 2022, updated Feb 28, 2022
China's energy reliance could move to Russia

China's energy reliance could move to Russia

China is still a big customer of Queensland’s gas through its stake in the state’s LNG projects and Arrow Energy. Until last year’s trade ban with Australia it was also the biggest buyer of coal.

But QIC said that over time, it expected to see a repositioning of global trade and the West would draw its own red line under the NATO states.

“China will substitute its energy imports from countries in the region like Australia, which resist China’s hegemony, with Russian imports,” QIC economics report said.

That could already be underway. Days before its invasion of Ukraine, Russia announced a deal with China for the sale of 100 million tonnes of coal, worth about $US20 billion. Not long after, another deal was done to buy Russian wheat.

“The West will move away from sourcing energy supplies from Russia and Russia will redirect its exports towards China.,” QIC chief economist Matthew Peter said.

“The EU27 will turn increasingly to the Middle East, South America and potentially even Australia for its energy needs.

“The current conflict could be the final nail in the coffin of globalisation as we head back to the Cold War trading blocs centred around Russia and China on the one hand and the US and Europe on the other.”

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The impact of the invasion on global markets has been short-lived. The ASX 200 was back in positive territory today after big falls last week.

QIC said there was commentary in the markets about “transient” impacts from localised wars and pointed to the Gulf War. Also, despite Russia’s bravado it was a relatively small economic player. It did, however, have a big impact on the oil and gas markets.

 

 

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