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Thursday, September 21, 2023

How The Prospect Of War In Ukraine Impacts Costa Rica

With Russian troops seeming to be prepared to launch a military offensive in Ukraine, many ask how a conflict so far away could impact Costa Rica.

It could be argued that it already has begun.

As the past two years have revealed, we live in a highly interconnected world. Markets are not limited to a few countries or a region. Markets are worldwide and a rise in prices one place means a rise in prices in all places.

Wheat markets on the world commodity exchanges have seen a sharp increase in prices already. Russia and Ukraine combined account for about 30% of the world’s supply of wheat. A conflict could not only effect production but also fragile supply chains, resulting in even higher prices.

Oil almost reached $100 a barrel over the weekend just based on statements made by the diplomats on all sides. Germany halted certification of a key pipeline from Russia which will boost energy costs not only in Germany, but for all of Europe and therefore the world.

Higher oil prices do not just impact the price of gas at the pump but also jet fuel, cooking fuel, fertilizers, food, shipping costs etc.

Higher jet fuel and military conflict impacts air travel, especially leisure travel. Costa Rica certainly does not need any more negative pressure put on tourism, a key sector of the economy.

Most people plan their vacation travel well in advance. Uncertainty about security or their own economic situation may cause people to delay their trip to Costa Rica.

If a war does come, all of these economic consequences will be even more severe and not go away anytime soon.  Prices will surely rise much higher and quicker than wages.

Many of these economic impacts take more time to be noticed by the average person. But they will see them.

Still, many wonder if a war in Ukraine will really have any significant impact on their lives.  A brief check of the financial markets would say it probably already has.

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