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Possible Impacts of the War in Ukraine on Puerto Rico

Economist José J. Villamil presents options for the future

Zoe Landi Fontana, The Weekly Journal

The impact of the Ukraine war on Puerto Rico will be felt in the ripple effects the crisis will have on the global economy as a whole. THE WEEKLY JOURNAL spoke with José J. Villamil of Estudios Técnicos for his insights on how various outcomes of the war in Ukraine could affect Puerto Rico. His main takeaway:

“Integration makes for greater efficiency, but also for greater vulnerability.” In the short term, Puerto Rico will see an exacerbation of preexisting issues. Consumer prices will go up and inflationary pressures will increase - as has been seen in the first few months of this year already. Last year, construction material costs went up 40%; the price of PVC alone increased by over 200%. These pressures have been present since the pandemic hit, but the war in Ukraine will add yet another hurdle to the local economy’s recovery, still recuperating from Hurricanes María and Irma and COVID-19. “In the short term - one to two years - we should see high prices for food, fuels, and materials such as steel and aluminum,” said Villamil, “In the long term, we will see the changing of geopolitics, global composition, and power relationships.”

Shifts In The ‘Globalization’ Paradigm

“The whole process of globalization has changed. When discussions on globalization began in the 70s and 80s, the idea was that globalization was the expansion of the European and Western model to the rest of the world,” explained Villamil, “What is very clear now, is that the globalization process still exists, but the key actors are very different: We have China and other players.” What is apparent, is that the volatility in the global scenario will probably remain for a while, and Puerto Rico will have to continue to evolve in an unstable and volatile environment. Thus, the island’s leaders must take steps to minimize such volatility. Villamil identified some of these steps as a rapid transition to non-fossil fuel energy bases and moving towards a more diversified economy, which would naturally create a larger risk buffer in case of other global crises. In addition to positive environmental effects, the other positive dimension of renewable energy is that it doesn’t rely on imports. Puerto Rico is still dependent on natural gas and petroleum imports from Russia and other European countries. It’s worth noting that in the fiscal year 2021, according to data published by the Financial Oversight and Management Board for Puerto Rico (FOMB), the island received an estimated 4.8 billion barrels of unleaded gasoline from Russia - representing about 17% of total imported gasoline. A shift to renewables, Villamil says, is practically an emergency issue. “The Ukraine situation has made it abundantly clear. The world is so integrated, the global economy, that it is very difficult to do things like, for example, sanctioning Russia by prohibiting their exports of petroleum and natural gas. Eliminating SWIFT for the Russians also implies a great deal of disruption for Western European countries and the US,” Villamil commented.

Puerto Rico’s Status

If, as a result of the conflict, the US is revealed to no longer be the world’s dominant power, Puerto Rico will have to reassess its relationship with the U.S. In discussions on Puerto Rico’s best options for the future, no one is putting into the equation the changes in the United States. “We still have this idealized version of the U.S. in the 1950s - stable, consensus on social issues, growing rapidly - and Puerto Rico merited respect in Washington. That relationship is no longer there - Puerto Rico is not a model and the U.S. is divided, race issues are cropping up again,” said Villamil. In the economist’s opinion, the island should be closely watching these changes. All movements - proponents of statehood, commonwealth, and independence - should be looking at what is going on in the U.S. mainland and decide what will be best for Puerto Rico in the long run. “Status is an instrument, it’s not an end in itself. Looking at it that way, we have to understand what is waiting at the other end,” advised Villamil.

Status is an instrument, it’s not an end in itself. Looking at it that way, we have to understand what is waiting at the other end.

José J. Villamil Economist

In fact,

According to data published by the FOMB, Puerto Rico received an estimated 4.8 billion barrels of unleaded gasoline from Russia - representing about 17% of total imported gasoline, in fiscal year 2021.