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How did the Russia-Ukraine war impact the global economy?

The Russia-Ukraine war has not only shaken both these countries but has also impacted the whole world, especially economically. The war cost the world a whopping 1.3 trillion dollars in 2022. (Business Standard, 2023) It caused massive inflation throughout the world and caused economic uncertainty. Both of these countries have massive importance in the world food supply, cooking oil supply, etc. They also massively contribute to the semiconductor industry and the mining industry. In addition to all of this, Russia controls around 11% of the world's oil and gas supply and the EU is heavily reliant on them for these resources.

(Voice of America, 2022)


As seen in the picture above, both of these countries, are very important in the global supply of food, like corn and wheat, of minerals, which are important in the production of modern technology, and most importantly natural gas and oil. This causes the prices to rise in all these sectors. This can be seen in the picture below.

(Kammer et al., 2022)

It not only heavily affected the countries that relied on the exports from these countries, but also damaged countries that were reliant on imports of these countries. Also due to the rising prices, governments of different countries have to pay subsidies to reduce the rising prices, which causes a fiscal deficit to the government.


North Africa- The rising food prices impacted North Africa, for example, Egypt imports 80% of its wheat from Russia and Ukraine. It also decreased the amount of Russian and Ukrainian tourists in North Africa.

Sub-Saharan Africa- All these problems have impacted this region too as they also import a lot of their supplies. Reduced tourism, higher food prices, and higher fiscal deficit for both these regions, due to the subsidies by the government.

All these factors, like food and oil prices, higher fiscal deficit, lower tourists from Russia and Ukraine, the impact of the shortage of minerals will also impact other parts of the world like South America, South Asia, etc. (Kammer et al., 2022)

Now that we have looked at how the war impacted the whole world, let's look at how it impacted the countries that were somehow involved in this war, and the countries that were the most affected by it.

 

The impact on Russia, Ukraine, the European Union countries, the UK, and the US These countries started putting sanctions on Russia, and high tariffs on Russian goods. Big companies like Mcdonald's and Zara left the Russian market, and all these damaged the Russian economy. So in retaliation, Russia cut off gas and oil supplies, causing the energy prices to spike massively throughout the world, as other suppliers of oil and gas such as the Arab countries, also used this opportunity to make large profits on these resources. This cost the European Union massively as they were heavily reliant on Russia for their oil and gas. The EU got their energy through Nord Stream pipelines, which was the EU's most effective way of getting these resources. Due to these high prices of oil and gas, Russia made more money from these resources than before the war. (South China Morning Post, 2022)


Due to these high prices, the EU, US and other G7 countries decided to form a buyers' monopoly, where they put an oil price cap of $60 per barrel. This prevented the prices from rising to extremely unbearable levels, and provided some assurance to consumers about the prices, as winter was approaching.


However to counteract this, Russia stopped supplying these resources completely to the G7 countries, and to all the countries that were following this price cap. Although this damaged the countries that were reliant on Russia, this also damaged Russia, as their economy was reliant on the oil revenue. To solve this problem, they had to find new buyers for their oil, and the second and third most consumers of energy came to their rescue, China and India, and other countries like Malaysia also started importing this oil. These countries had the incentive to buy this oil as Russia was selling it at a discounted price so other countries decided to buy the oil. This meant that, although Russia was not making as much revenue through oil and gas, it still made a lot.


The EU had no control over these countries, however, they had a monopoly in the transport of these resources, as Russian oil used to get transported using Greek vessels, this is why the EU did not allow Russia to use these vessels. They also made it harder for the ships to leave by not insuring the ships, which was controlled by a London company. Russia, tried other methods to counteract this, like sending ghost ships, not letting other countries, and by insuring the ships on their own. This warfare has continued since the start and has undoubtedly led to economic harm in the EU, Ukraine, Russia and the US. Causing extremely high prices, loss of consumer confidence, disposable income, and economic uncertainty, the UK is one of the main examples. Despite all of this, some countries have benefitted economically from the war, like all the Arab countries, as they could make higher profits on oil and gas due to lower supply by Russia. Other countries, like India, have also benefitted as they are huge producers of wheat, and so after the war, the supply of wheat has fallen too, due to which more countries started to import food from India. India and China also benefitted from lower energy prices.


(Romei et al., 2022)


In conclusion, due to this war, the world prices rose a lot causing inflation in several countries, even if they are not directly dependent on Russia and Ukraine. It slowed the whole global economy, causing economic uncertainty, loss of consumer confidence, etc. However, it impacted some countries more than others, especially the European Union countries. Another country that is an example of this is the United Kingdom, as it had a cost of living crisis, and still hasn't recovered from the inflation last year. Both the UK and the US were on the brink of a recession. On the other hand, it benefitted countries Arab and Australia as other countries demanded oil from them. It also benefitted South Asian countries, as they were the next alternative to supplying food after Russia and Ukraine. One lesson that the world has learnt is to think carefully about the countries they are dependent on. It will lead to more planned trade with countries and will cause a higher supply chain within a country.











References


Reuters (2022) Russia making more money off oil and gas than before Ukraine War, South China Morning Post. Available at: https://www.scmp.com/news/world/russia-central-asia/article/3181110/russias-making-more-money-oil-and-gas-ukraine-war-us (Accessed: 26 November 2023).


NewIndianXpress (2022) Ukraine conflict affects India’s Telecom, Tea Exports: Centre in Parliament, The New Indian Express. Available at: https://www.newindianexpress.com/business/2022/jul/27/ukraine-conflict-affectsindias-telecom-tea-exports-centre-in-parliament-2481229.html (Accessed: 26 November 2023).


How Putin’s WAR STRATEGY is KILLING Europe and US? : War Strategy Case study ( Russia vs Europe) (2022). 29 July. Available at: https://youtu.be/IBbz8sjVz6I?si=MKlZDm04FUyw2z-i (Accessed: 26 November 2023).

Kammer, A. et al. (2022) How war in Ukraine is reverberating across World’s regions, IMF. Available at: https://www.imf.org/en/Blogs/Articles/2022/03/15/blog-how-war-in-ukraine-is-reverberating-across-worlds-regions-031522 (Accessed: 27 November 2023).


The Oil war between Russia vs USA and Europe Explained | How will it change India? : Geopolitics (2023). 3 January. Available at: https://youtu.be/Ko3K8Duq4Eo?si=FPVbGHZ41y2WqR-k (Accessed: 27 November 2023).


Romei, V., Giles, C. and Wheatley, J. (2022) How will Russia’s invasion of Ukraine hit the global economy?, Financial Times. Available at: https://www.ft.com/content/a6227910-751b-443c-883f-2ed41a828426 (Accessed: 27 November 2023).


The Global Economic Impact of Russia’s Invasion of Ukraine (2022). 30 March. Available at: https://youtu.be/oy0Mom-vcW8?si=Q2Do2Wtv1OchF2XG (Accessed: 28 November 2023).


How Russia-Ukraine war wrecked the global economy in the Past One Year | Business Standard (2023). 24 February. Available at: https://youtu.be/vzuvR0ysCUo?si=wRdiYr9NxADMobNz (Accessed: 28 November 2023).













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