Opinion | Ukraine war: Asia is caught in rip tide of power polarisation and sanctions chaos

Russia’s invasion of Ukraine has sparked diplomatic and economic chaos around the world. Amid intensified sanctions and concerns about Russia’s gas supply to Europe, the world seems to be scrambling to respond to a crisis quickly spiralling out of control.

Across the Asia-Pacific, stock markets fell with the news, with market benchmarks down 2 per cent in Tokyo and Seoul, and more than 3 per cent in Hong Kong and Sydney on Thursday alone.

Russia, stung by the 2014 sanctions after its annexation of Crimea, has spent the intervening years moving away from the US dollar – and strengthening its ties with China and the renminbi. As tensions with Ukraine started to build again last July, Russia’s US$186 billion sovereign wealth fund said it had dumped all of its dollars to hold 30.4 per cent of its value in yuan and 20.2 per cent in gold.

Three weeks before the invasion, Russia announced oil and gas deals worth US$117.5 billion with China, an old ally and economic partner. Bilateral trade, which had jumped from US$4.87 billion in 1995 to US$105 billion in 2019, is expected to reach US$200 billion by 2024. But trade with the rest of the world will be hurt.

Sanctions are set to hit Russia’s trade with the European Union, its biggest partner, worth about US$219 billion in 2020. The United States, Britain and the EU have frozen the assets of Russian financial institutions and oligarchs. Allies from Australia and Japan to South Korea and Taiwan are joining the sanctions – potentially costing Russia more than US$11 billion a year in export revenue – including banning Russian bonds.

Russia’s invasion also threatens to leave Ukraine’s trade in tatters, potentially affecting China. Ukraine is China’s largest corn supplier, selling more than a third of its harvest to China, which is Ukraine’s biggest overall export market at US$8 billion last year. In turn, China, which relies on Ukraine for 30 per cent of its corn needs, has invested heavily in Ukraine as part of its Belt and Road Initiative.