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Russia-Ukraine Conflict and the Rising Issue of Global Oil Scarcity

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Ica Cahayani and Agata Nina Puspita

Nowadays, the issue, which appears in the talks of the global community, becomes an inevitable scourge. The prolonged conflict has made people worry about the third world war. People’s concerns are certainly supported by past historical records where big wars always occur due to a different national interest of big countries which share strong interests and ambitions. The conflict which happened between Russia and Ukraine on 24 February 2022 has made the global community seek peaceful diplomacy for the two conflicted countries. On 2 March 2022, United Nations General Assembly urged Russia to open a space for peaceful diplomacy in order to resolve Russia and Ukraine’s national’ interest.

The UN General Assembly was attended by the representatives of the UN member countries to vote in order to end the war which was made by Russia. It resulted the adoption for a resolution and the vote showed that 141 countries supported Russia to withdraw its military from Ukraine, 5 countries disagreed and 35 showed abstentions (United Nations, 2022). The high-level meeting has been held, but the conflict has not yet been resolved. The political behaviour of the Russian military causes concern for the global community because the impact has made the economic system decrease not only for the two conflicting countries decrease but also global community.

The relations of economic and conflict are very close. If a conflict occurs, it will be followed by a global economic crisis, especially when countries experience conflict and have a strategic role in the global economic system. The world today is not only facing conflict but also the predictions about a third world war that appears in the conversation of international community. In relation with that, due to the conflict, the world oil crisis has escalated.

Since the end of 2021, palm oil prices have increased. Palm oil is experiencing scarcity, even in Indonesia as a palm oil producing country is experiencing an extraordinary oil scarcity. The supply of palm cooking oil is predicted to be constrained due to the supply of Crude Palm Oil (CPO). Indonesia as a palm oil producing country is continuously to be urged to fulfil the vacancy in the supply of sunflower oil due to the conflict between Russia and Ukraine. India is one of the countries that pushed Indonesia to meet the global oil needs due to the crisis happened in Ukraine.

Indonesia’s effort in dealing with the palm oil crisis have been carried out with various collaborations. One of them was a cooperation with Switzerland which encouraged sustainable palm oil in Indonesia. Both Indonesia and Switzerland on 24 February 2022 through the 9th meeting of the Joint Commission on International Economy and Trade discussed global supply chain issues and palm oil as the main issue in Indonesia (Ministry Foreign Affairs of the Republic of Indonesia, 2022). In order to deal with global oil scarcity, Indonesia prioritises oil production as a biodiesel fuel rather than food ingredient.

Indonesian Minister of Trade said that the increase of Crude Palm Oil (CPO) prices happened because of the government’s policy on the use of biodiesel (B30). Indonesia’s government provides guarantee to biodiesel companies because of the additional subsidy that causes entrepreneurs tend to distribute CPO which was owned by company to biodiesel companies rather than cooking oil factories. In addition, the crisis of oil scarcity is also caused by the rising international vegetable oil prices which are still high. The government is also in the stage of waiting for both national and international producers and distributors, so it causes a national oil shortage due to the uneven distribution process and some areas experiencing oil shortages. This problem has impacted Indonesia’s domestic cooking oil production. It also adds to the problem of global oil scarcity.

Ukraine and Russia before the crisis became sunflower oil producing countries. Asian and European refineries have started to increase sales of palm oil to replace sunflower seed oil. The scarcity of oil and the high cost of palm oil are caused by palm oil, replacing sunflower oil. Palm oil production is hampered because the export-import process is hampered in the Black Sea region due to the conflict between Russia and Ukraine. Palm oil records are rising at high prices almost all over the world. The Black Sea contributes to 60% of the world’s sunflower seed oil production. Asian and European refiners are increasing the purchases of palm oil to an irrational price.

Besides sunflower seed oil, another oil production that helps palm oil to the global oil demand is soybean oil. However, soybean oil also experienced production constraints because the world’s largest soybean producing countries such as Brazil, Argentina and Paraguay experienced a decline due to the dry weather. In other words, climate change is the cause of the decline in soybean oil production. Thus, the world today depends on palm oil.

The traditional security crises, as in Russia and Ukraine crises, pose a threat to food security, especially in the oil sector. According to Maxwell (1996), food security is the guarantee of access at any time to sufficient food. In addition, according to the Food and Agriculture Organization (FAO), food security is divided into four, namely: first, the physical availability of food consists of the level of food production, the level of stock. Second, there is physical and economic access to food, namely the adequate supply of food at the national and international levels. Third, there is the use of food to meet the nutrition of the global community. Fourth, there is food stability.

The FAO’s fourth points become a global concern because it relates to the lack of food availability from bead weather conditions and world political instability. World political instability due to the conflict between Ukraine and Russia has triggered food shortages, especially in the cooking oil sector. This crisis has also triggered an economic crisis so that countries like Indonesia are more concerned with processing palm oil as diesel fuel because of domestic economic interests. It happens because Indonesia wants to maintain its domestic economic system, which is also experiencing a big dilemma due to the ongoing global crisis. The world economic crisis started from the COVID-19 pandemic to the emergence of Russia-Ukraine conflict which added to the burden on the global economic system getting higher. The Russian-Ukrainian crisis that triggered the emergence of food shortages will also lead to a lack of nutrition for the world community if other food shortages follow the global oil scarcity. Another food shortage prediction will emerge as the conflict between Russia and Ukraine has been escalating for a long time.