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Russia and Ukraine: global economic consequences
While the Russian army continues the attack throughout the Ukrainian territory, the economic impact of the war is having great relevance in three important sectors for the world economy.
This conflict in Europe brings new challenges to the table for a world severely affected by inflation, which is the consequence of the COVID-19 pandemic.
The financial strategist at the firm eToro, Ben Laidler, has assured that this war is a triple blow for the world economy, with "toxic" inflation, lower purchasing power and enormous uncertainty.
1. Energy crisis
The confrontation between Russia and Ukraine led to the price of oil reaching its highest level in almost a decade, just minutes after the war began on Ukrainian territory.
In addition, gas contract prices rose by more than 60% in less than 24 hours.
Russia is the second largest oil exporting country and is the main international exporter of natural gas.
For this reason, European countries have expressed concern that Vladimir Putin could use these natural resources as a geopolitical weapon, cutting gas supplies to the continent in response to the sanctions imposed by the West on Russia.
The problem is that, if a nation that is dependent on gas from Russia receives less supply, it will be forced to replace it with other sources that are available on the global market and this affects the gas supply for the rest of the countries.
Bill Adams, an economist and head of consultancy and investment bank Comerica, noted that the bigger the conflict, the harder the impact on global energy supply.
2. Financial instability
A few hours after the Russian invasion of Ukraine began, European economic markets collapsed, especially in Russia.
Experts in financial markets have reiterated that the invasion is the worst scenario in a war and it is for this reason that the negative reaction in the markets was seen so quickly.
Banks and oil companies in Russia have been the most affected of all large Russian companies that have seen their shares fall, after the start of the war.
Likewise, experts predict that the longer the conflict extends, the markets will present greater volatility.
And this would not only affect big investors, but also ordinary people. For example, a person who saves for a pension will be affected, since their savings are invested in the stock market.
On the other hand, gold, which achieved its highest price since 2020, is being a support asset for all investors.
In the black markets, the dollar has strengthened, while currencies such as the euro or the British pound have fallen in value.
3. World agriculture
In international markets, wheat and corn rose in price just at the beginning of the Russian invasion of Ukraine.
Wheat managed to reach its highest price since 2012, which has generated great concern that it could further push up food costs internationally.
Russia and Ukraine were called “the European breadbasket”, since they export more than 25% of the international production of wheat, almost 20% of corn and 80% of vegetable oil.
international inflation
One of the biggest crises that humanity is facing is the enormous rise in the cost of living around the world, as a result of the pandemic.
In the United States, inflation reached its highest point since 1982, registering 7.5% in January. The two factors that most influenced this rise in inflation were food and energy.
From the Center for Business Economic Research (CEBR in English), they assured that inflation in the economic powers of the West can reach close to 10%.
Experts have considered that Russia will not be sanctioned for its invasion through energy export embargoes, as they did with Saddam Hussein after Iraq's invasion of Kuwait in 1990.
Even gas exports from Russia to all of Europe have grown. Thus, the economic flow from Western Europe to Russia continues.
However, the blow that the Kremlin receives in the international market is clear. It has high debt, the stock market is in a tailspin, and the ruble hit an all-time low.
As in all wars, economic struggles escalate. Western countries are considering removing Russia from the Swift banking network, which would put Moscow in greater isolation than it is today.
However, Putin may limit energy exports to Europe, which would influence an unprecedented increase in prices.
This measure would only have long-term negative effects, according to experts.
However, if the war were to extend further, Europe could be plunged into a stage of very important economic decline.
The diplomatic and political consequences due to the conflict are worrying, but the economic impact is extremely serious.
