Go to contents

New Cold War Cools Global Economy

Posted August. 23, 2008 07:40,   


In the wake of the conflict in Georgia, worsening relations between the United States and Russia have led to a new Cold War that is hurting the global economy.

Experts warn that uncertainty over the conflict between Russia and Georgia will be an obstacle to U.S. economic recovery. The dollar has weakened, resulting in a surge in prices of commodities such as gold. Foreign investors have fled Russia in droves.

On the New York Mercantile Exchange, U.S. West Texas intermediate crude for October delivery rose 4.9 percent to 122 dollars per barrel Thursday, the biggest daily hike in three weeks.

After around 110 dollar, the international price of oil has jumped up in the wake of worsening tension between Russia and the U.S.-led West.

Washington announced a plan to transfer 10 interceptor missiles in Poland to build a missile defense system. In response, Moscow has threatened to do more than file a diplomatic protest.

Russia says it could close Georgia’s major ports and control Europe`s natural gas supply.

Russia is only second to Saudi Arabia in oil production. The oil pipeline running through Georgia delivers oil from fields near the Caspian Sea to Mediterranean nations.

One of the world’s biggest energy providers, Russia supplies a quarter of the oil and half of the natural gas consumed by the European Union.

If Russia suspends its oil supply to threaten the United States, economic uncertainty will linger on for a long time.

Neal Ryan, a managing partner and owner of Ryan Oil & Gas Partners, said factors that have helped stabilize oil prices have disappeared as the market is under the influence of supply shock and geopolitical uncertainty.

As tension intensifies between Washington and Moscow, the dollar has also depreciated.

On Thursday, the dollar fell 1.03 percent from the previous day and one euro was exchanged for 1.49 dollars on the NYMEX market. Similarly, the yen-dollar exchange rate fell 1.26 percent to 108.47.

A weakening dollar has spread fear across the commodity market. As the dollar weakened drastically Thursday, speculative investors flocked into the market. As a result, the Reuters/Jeffries CRB Index of commodity prices jumped 3.7 percent to 405.92. Gold for December delivery surged 22.70 dollars (2.8 percent) to 839 dollars per ounce and silver prices shot up 5.2 percent.

Since Russia began its war against Georgia Aug. 8, the Russian stock market has contracted 6.5 percent. Moscow`s foreign exchange reserves have also plummeted by more than 16.4 billion dollars over the past week.