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Inflation and Brunei’s Economic Outlook: Managing the economy in an era of geopolitics and global uncertainties

OpinionInflation and Brunei’s Economic Outlook: Managing the economy in an era of geopolitics and global uncertainties

The world economy is at a crossroad. On one hand, global merchandise has risen significantly since the start of 2022 following the increase in the prices of oil and gas, food, logistic logjams and rising shipping cost has severely setback the world economic recovery. On the other hand, the more pressing issues that the world is currently facing are the increasing geopolitical tension arising from the Russia-Ukraine war as well as the competition between the giant economies vis-à-vis US and China are severely disrupting the global supply chain. If one thing is certain it is that the global pandemic health crisis has taught us that globalization has inevitably created deeper interdependence between national economies, but changes in the geopolitical realms also display fragility in our global value chains. 

As countries are preparing to open up borders for tourism, the demand for energy is increasingly growing as people are now consuming more. For oil-producing countries, the geopolitical tension has disrupted the supply of oil which in turn is driving the prices of fossil fuel.

Since the start of the war, the price of oil and gas continues to rise as the tragic war in Ukraine saw Western countries sanctioning Russia’s oil, tightening the world’s supply of it. It should be known that Russia is a major player in the global energy market. As one of the top three largest producers of crude oil and the second largest gas producer in the world, sanctions implemented by the US and its allies saw the price of the commodity soar, driving global inflation. It was difficult to imagine that two years ago, that the price of crude oil would rise to $100+ barrel per day.

Despite the high oil prices, Brunei’s economic performance in 2021 continued to be weak. The global pandemic followed by a declining output in the extraction of oil and gas due to ageing oilfields and shortages of labour have nudged the country’s economy towards contraction. According to the Department of Statistics, Brunei’s economy shrank in 2021 whereby GDP growth contracted to -1.6%.

(Source: Sociable & Co.)

Why is the volatility in oil and gas prices causing global inflation?

The importance of oil and gas is not just limited to energy. In the world of fashion, more than half of the materials in our clothes is made of synthetic fabric and fiber materials such as polyester, nylon, acrylic, polypropylene and elastane – all derived from crude oil. For importing countries such as Brunei, the price hike in oil and gas also affects the price of clothing. In turn, producers and manufacturers pass the cost of production to consumers which weakens consumption for clothes. According to Brunei’s consumer price index in February 2022, the price of clothing and footwear increased by 10.4%.

However, the enormity of geopolitical tension should not be understated. Both Ukraine and Russia are essential to the world economic system. Both countries serve as important players in the global food chain. Russia is currently the world’s top exporter for wheat which contributes to 18% of the world food supply. Production of grain is important to humans as we consume wheat in almost all of our daily products such as bread, pasta and other staple food. Not only that, Russia is also the largest fertilizer producer accounting for 15% of world’s nitrogen fertilizers. The accumulation of problems derived from the geopolitical tension creates worldwide spillovers which is causing a humanitarian crisis.

For Brunei, the impact of inflation has been notable, especially in our daily lives. According to the Department of Statistics, essential food products such as meat and vegetable oil saw a hike in prices in February 2022. As a net importer of food, any changes in the domestic policies of the exporting countries can be detrimental to the supply of food, which in turn causes food prices in Brunei to soar. For instance, Malaysia’s decision to implement an export ban of chicken may result in temporary disruption in the supply of processed meat and frozen chicken. Despite this, as a welfare state, the impact of inflation towards the Brunei population is sustainable as interventions from the government through subsidies and price control on essential goods make food relatively affordable.

Even with the short-term inflation, we should also be aware that price volatility on food will remain for some time as the effects of climate change on food production will indicate shortages in the future. The issue on climate change will likely continue diminishing food security as the unpredictable weather patterns will disrupt countries’ ability to grow for export. Frequent droughts, excessive rainfall and extreme changes in the weather patterns can potentially destabilize the world’s food chain supply, which will cause further food shortages in the future.

With a growing world population, the increasing price in food, global hunger and the need to secure resources for food will be the next geopolitical issues the world will have to face. We have already witnessed that geopolitical tension as well as populist domestic policies greatly influence food price volatility. Thus, it is essential for Brunei to continue its efforts towards self-sufficiency by expanding its agricultural programs to help secure the future. Increasing participation in the agriculture through education, adopting better technologies and grants can help spur the next generation of farmers to help Brunei be more impervious from future uncertainties.


Source: Sociable & Co.

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