How will the Ukraine crisis affect the global economy? Russia's offensive against Ukraine could lead to a sharp rise in food and energy prices. After being hit by the pandemic, supply chain disruptions and soaring prices, the global economy will embark on another unpredictable path due to armed conflict on Europe's borders.
Moscow
Tensions have taken their toll long before the Kremlin on Monday ordered Russian troops to enter areas of Ukraine seeking to break up. President Biden's promise to respond with tough sanctions and the possibility of Retaliation by Russia have depressed stock returns and pushed up gasoline prices.
A direct attack by Russian forces could lead to soaring energy and food prices, exacerbate inflation concerns and scare off investors, factors that could threaten investment and growth in the global economy.
Ukrainian people
No matter how severe the impact, the immediate impact is far less devastating than the economic shutdown caused by the coronavirus for the first time in 2020. Russia is a giant transcontinental country with a population of 146 million and a vast nuclear arsenal, and a supplier of oil, gas and raw materials that keep the world's factories running. But unlike China, which is a manufacturing powerhouse tightly integrated into intricate supply chains, Russia plays only a small role in the global economy.
Nearly 40 percent of Europe's natural gas and 25 percent of its oil come from Russia and are likely to be hit by already soaring heating and gas bills. Natural gas reserves are less than a third of total capacity due to cold weather in the coming weeks, and supply is declining due to the crisis in Ukraine.
The situation in Ukraine
In addition, according to a recent United Nations report, food prices have climbed to their highest levels in more than a decade, with supply chain disruption caused by the pandemic being the main reason. Russia is the world's largest supplier of wheat, accounting for nearly a quarter of total global exports, along with Ukraine. Some countries are more dependent on wheat. Wheat from there accounts for more than 70% of total Egyptian and Turkish wheat imports.
This will put further pressure on Turkey, which is already in the midst of an economic crisis and is grappling with inflation close to 50 percent, with soaring food, fuel and electricity prices.
As always, the most vulnerable bear the heaviest burden. Ian Golding, a professor at the University of Oxford, said: "Poor people spend more on food and heating as a percentage of their income. Ukraine, long known as the "breadbasket of Europe," actually ships more than 40 percent of its wheat and corn exports to the Middle East or Africa, and there are fears that further food shortages and rising prices could trigger social unrest. Lebanon, for example, is experiencing one of the most devastating economic crises in more than a century, with more than half of its wheat coming from Ukraine, which is also the world's largest exporter of seed oils such as sunflower and rapeseed oil.
The White House responded on Monday to Putin's decision to recognize regional independence between the two Russian-backed regions in eastern Ukraine, saying it would begin imposing limited sanctions on the so-called Donetsk and Luhansk People's Republics. Biden soon issued an executive order prohibiting investment, trade and financing transactions with people in those regions.
Russian President Vladimir Putin
It is clear from the global outbreak that a slight disturbance in an area can cause significant damage in a distant place. The world is still struggling to recover from the pandemic, with isolated shortages and soaring prices: whether it's natural gas, wheat, aluminum or nickel – it could snow boge.
There is high inflation, tight supply chains, and uncertainty about what the central bank will do or how long the price increase will last. The additional pressures may be relatively modest in isolation, but they pile up on economies that are still recovering from the blows caused by the pandemic. It is also clear that "political uncertainty and volatility affect economic activity." "This means that the conflict could have a double impact – a slowdown in economic activity and higher prices.
In the United States, the Fed is already facing its highest inflation in 40 years, at 7.5 percent in January, and is expected to start raising rates next month. The energy price increases triggered by the Conflict in Europe may be temporary, but they could raise concerns about the spiral in wage prices. Fears of inflation are also exacerbated by the likely shortage of base metals such as palladium, aluminum and nickel, which has yet to wreak havoc on global supply chains already suffering from the pandemic, the Canadian trucker strike and semiconductor shortages. For example, the price of palladium, which is used in car exhaust systems, cell phones and even dental fillers, has soared in recent weeks over fears that Russia, the world's largest exporter of the metal, could be shut out of global markets. The price of nickel, which is used to make batteries for steel and electric vehicles, has also been rising.
US President Joe Biden announced sanctions against Russia
Lars, chief technology officer of Swedish truck maker Volvo, said it was too early to assess the exact impact of the armed conflict. But he added, "It's a very, very serious thing." "There are a lot of things we need to consider, and we are watching the developments every day." ”
Affected by the Crisis in Ukraine, the West has taken steps to ease measures and assess the impact on Europe. The United States has increased its supply of liquefied natural gas and has asked other suppliers, such as Qatar, to do the same. The situation will not be too clear in the short term, but it is worth affirming that the crisis will have a significant impact on the global economy.