The Russo-Ukrainian War is a full-scale invasion of Ukraine by Russia that has caught the world’s attention since February 21, 2022. As the war evolves, its impact ripples beyond the lands of the East Slavic peoples. This article aims to provide an overview of the global ramifications of this conflict and its effects on the world.
Context
The conflict began with the Russian annexation of Ukraine-held Crimea in 2014 and the Russian backing of anti-Ukrainian extremist forces. Ukraine has been struggling for full freedom from Russian influence since the USSR’s dissipation in 1991. Given that the anti-USSR/Russian NATO has increased pressure in the West and that Ukraine has applied for the organisation, Russia has retaliated with aggression to counter and keep influence in the area. Vladimir Putin, the Russian autocrat, has also laid claims denigrating the validity of Ukrainian identity and statehood, along with the unity of a united Slav nation under Russia. This is telling of possible plans considering his firm view that an Eastern Slavic nation should form due to their common origins from the ancient civilisation of Kievan Rus.
Current State of the Conflict
As we start to delve into the ongoing crisis in Ukraine, there have been noteworthy advancements on the military front. Ukrainian counter-offensives have broken through Russia’s first line in the Zaporizhzhya region in Southeast Ukraine. This allows for further expansion behind lines and for a counter-attack to force Russia out of the surrounding regions.
Turning our attention to international affairs, particularly North Korea’s engagement with Russia, we find an intriguing development. The North Korean Kim Jong Un, famous for continuing what North Korea is famous for, has decided to meet with Russian ministers over arms talks and trade deals. This could mean an increase in the Russian arms count, resources, or other tools to help with their acquisition of Ukraine. North Korea has also recently been inspecting the Russian missile arsenal and their bombing capabilities, indicating a push to further their trade deals. This has the benefit of conventional weapons to push the Russian cause and a push forward in North Korean weaponry via Russian engineering and help.
These talks may decrease Chinese power in the trilateral friendship the nations (China, North Korea, Russia) have. This agreement blossoming into further developments makes the two nations less reliant on China and would get more autonomy and leverage over China by developing this bilateral mutual support and aid system. This all would end up happening right outside Chinese borders but China would have a lack of control in the matters.
In light of the conflict and its impact on the worldwide economy, let’s now shift our focus to another significant international meeting. Ukraine has always had a strong presence in the international grains and seeds market, especially in the Turkish market. Ukraine has always been a large exporter to Turkey, Turkey has always been very dependent on Ukrainian grains, and both nations have had strong trade relations due to this relationship. The war blocked shipping lines and left Ukraine inaccessible to most trade. With increasing concerns over general welfare, Turkey has called for Russia to allow trading between Ukraine and the rest of the world. Russia has backed out of the deal that stood in pace earlier until demands of reduced sanctions are met.
Economic Ramifications on Global Markets
Before the invasions started, the worldwide GDP growth was estimated at around 5%. It turned out to be closer to 2%. The war was a huge shock to many markets, accounting for the price shocks in Europe. It increased inflationary pressures for both food and energy prices, causing inflation to rise from near zero to almost 10% in almost a year. The war was also a catalyst of economic troubles in developed nations that had “soft economic policies” (slowing growth to avoid recessions).
As we reflect on the far-reaching consequences of the war, it becomes evident that its impact extended well beyond GDP figures and economic policies. Let’s delve deeper into the intricate web of economic forces that have shaped post-Coronavirus inflation trends and what the future may hold. With prices rising due to all these factors, “cost-push inflation” (where costs push prices up) has added heavily to the post-Coronavirus inflationary pressures, especially in the food and energy markets. Headline inflation rose from 0.3% inflation to a staggering 8.4%, while food prices rose by 14.3% compared to the previous year. In these situations, firms will increase prices to try and minimise their losses. Workers also have cause to increase their wages to keep away from the real loss by inflation. There are signs that this will moderate and slowly return to more normal levels, as nations are moving away from Russian energy and promoting sustainable energy sources and food inflation is slowly decreasing. The strong labour market since the invasion also promises stability for European markets.
Continuing onto Europe’s energy landscape, we observe a seismic shift brought about by the war’s energy price shocks. Compared to the rest of the world, Europe had very fragile energy price shocks due to their almost exclusive dependence on Russia for their energy. With the war, prices of oil, coal, and gas jumped by about 40%, 130%, and 180%, respectively, causing havoc in markets. The realisation of their predicament has caused many nations to push for energy independence, leading to increased investments in renewable energy sources. This has shifted the market from one reliant on Russian fossil fuels to one that can survive without as much fuel. This has also led to a more diverse fuel supply and less import dependence, allowing for a stronger national economy.
In addition to this Ukrainian export drawback, food prices in Europe have grown exponentially, especially for edible oil, corn, and wheat. Russia and Ukraine supply a third of the world’s wheat, edible oils, feed crops, and grains. With prices so high, the economy could barely manage to handle its wheat and grain production lows. The planting season outside of the region is in Fall, so they couldn’t adjust how much they planted, so there was no flexibility to prepare for wartime. The war’s initial impact shocked the world, with wheat futures increasing by almost 60% and feed crops by 15% in a week. To add to the damage caused by Russian destruction of grains, food-producing nations banned exports of certain crops for a time, such as India’s wheat and Indonesia’s palm oil. This affected about 15% of the world’s crops and prices surged higher. But it was surprisingly short, lasting a little under a year rather than lasting a few years as predicted. With unusually good crop returns, the world went to a more fortunate lucking out of price increases. Russian grain output grew by almost a quarter more than usual, implying that they profited (and still do profit) off the war they started.
With the war shutting down steel plants and shipping routes, there have been extreme shortages of this alloy and extremely high prices. With Ukraine being the main exporter of many types of metals and the total production reducing by 65%, Russian steel has passed through a loophole in the sanctions and has replaced almost all of the lost Ukrainian steel production at lower prices. With Russian steel sanctions, black markets have emerged, although most of the steel has been redirected to developing nations. Turkey, in particular, increased Russian imports drastically to take advantage of the reduction in prices, shifting a majority of Russian-produced steel’s consumer base.
Now, let’s turn our attention to the financial markets, where the war initially caused turbulence but eventually led to intriguing developments in the equity, bond, and investment markets. Euro equity markets were hit hard by the impacts of the war but ended up rebounding quickly, indicating a strong recovery in the investment market. Proximity and dependency on energy ended up playing a large role in performance. The bond market saw government bonds sweeping to shift upwards, increasing yields, and corporate bonds’ spreads widening, increasing risk. Inflation and the actions of the Central bank have ended up impacting market dynamics. The choice to battle inflation has led to interest rate hikes to cool down pressures on them. Uncertainty, however, remains high in the bond market, as real yields remain relatively high. With the turning point of low-yield low-rate property investments, the war might end up redefining the role of commercial properties in investment portfolios. With investments in green technologies and green energy increasing with investments in clean/energy-efficient companies favoured, investors are more partial towards companies with a stronger impact on the environment, as these companies are better prepared to handle uncertainties in these areas.
Looking ahead, the colossal task of rebuilding Ukraine looms on the horizon, with estimates surpassing the cost of the war itself. The World Bank estimated that the cost to rebuild Ukraine would cost about 349 billion US dollars in September 2022, a huge sum in itself, but larger than both the investments poured into Ukraine and the pre-invasion Ukrainian GDP, while the current actual cost is almost guaranteed to be higher. With 330 billion seized or frozen from Russians by the Allies, rebuilding Ukraine is more expensive than the war itself. In terms of destruction, this undertaking is comparable to the aftermath of World War II, underscoring the magnitude of the challenge ahead.
The war’s effects were not confined purely to only the economic and financial realms alone; they also had profound implications for global security and defence spending. This war has increased investments in the defence budgets of many European nations, as well as other perceived threats that arose from this conflict. With a 2.6% increase in budgets, primarily in larger nations, worldwide defence budgets have surpassed 2 trillion dollars for the first time in history. Nations with Russia-influenced regional pressures have increased their budgets by higher percentages than before, as the case with Japan doubling theirs due to China and N. Korea. There has been a shift from neutrality to more Cold-War-style tensions and economies, as many neutral nations have decided to partner against Russia, prompting a rethinking of European security. This has also caused more contained investments, with two different worlds of investment markets in place today. These moves have deterred overall growth in favour of short-term economic growth and have been taking away from other areas of spending. Tensions were already strong in the start, but the war has exponentially increased fears and concerns. This led to drastic increases in budget increases, amounting to about 23 Billion US Dollars. This leads to a scenario where many other programs are underfunded due to apprehension about the conflict and its result.
Conclusion
To conclude, the extensive repercussions of the Russo-Ukrainian War have had a lasting influence on the worldwide stage. This conflict has altered economic landscapes, placed stress on international political ties, and transformed security frameworks. Although the immediate effects are apparent, the long-term consequences on global relations, trade dynamics, and investment markets will persist and undergo further changes over time.
Comments