The World Economic Aftermath of the Russian-Ukrainian Crisis
By: Tamara Abu Ali
The effects of Russia’s invasion of Ukraine on the world economy have started to unfold slowly. This article discusses how natural resources and economic vulnerabilities can be used as geopolitical tools to gain power.
As the world starts to witness a slight economic recovery following the Covid-19 pandemic, another crisis emerges. Russia has declared war on Ukraine because it believes that Ukraine is becoming a threat to Russia's safety, development, and growth. In addition, Russia’s president, Vladimir Putin, is concerned that NATO has been encroaching on its territory by taking on new members in eastern Europe and that admitting Ukraine would bring NATO forces into Russia’s backyard (Holland et al., n.d.) (Kirby, 2022). The Russian hostility towards NATO started in 2014, more precisely, when Russia annexed Crimea and invaded eastern Ukraine. NATO responded by suspending cooperation with Russia and boosting Kyiv's defensive capabilities (Holland et al., n.d.) (Kirby, 2022). It has also held military training, deployed troops to the region, and funded cyber warfare protections (Holland et al., n.d.) (Kirby, 2022).
The implications of The War on The Global Economy
After establishing that the primary purpose of the Russian-Ukrainian war is Russia’s political motive to prevent Ukraine from joining NATO, it is time to discuss the implications that this war has on the world economy.
A - Wheat Supply (Food Insecurity, Geopolitics, etc.)
Russia and Ukraine play an essential role in the widely traded food commodities supply chain. Both countries are major wheat exporters, with a combined global market share of over 25% in 2019 (Tan, 2022). Ukraine is very well known for its supply of wheat, at an affordable price, to countries in the Middle East, Northern Africa, and Asia (Tan, 2022).
As we dive deeper into the effects of the Russian-Ukrainian crisis, we realize that regions that rely heavily on Ukrainian supplied wheat will experience damaging ripple effects due to the Russian-Ukrainian war. Experts in the International Monetary Fund (IMF) speculate that countries such as Egypt, Algeria, and Lebanon will observe problems related to food insecurity, which could potentially aid in creating a volatile political climate.
For instance, Egypt, which has a population of 106,156,692, imports approximately 85% of its wheat from both Russia and Ukraine (Safty, 2022). According to the UN's Meals and Agriculture Group, one-third of the Egyptian population lives on less than $1.50 per day, meaning that bread is one of the few food commodities they can afford (Safty, 2022). Moreover, Egyptians rely on bread for one-third of their energy intake and 45% of their protein intake (El Saffy & Lewis, n.d.) (Safty, 2022).
The General Authority for Supply Commodities (GASC), Egypt's national buyer, purchases significantly subsidized bread for more than 60 million Egyptians (El Saffy & Lewis, n.d.). This food support program is currently being reassessed by the government (El Saffy & Lewis, n.d.). The cause of reassessment is attributed to the wheat supply shortage. This indicates that a deficiency in wheat supply is, in fact, a very challenging crisis for Egypt – or any other country experiencing a shortage in wheat supply – to overcome (El Saffy & Lewis, n.d.).
Previously in Egypt, an increase in poverty, unemployment, and inflation has caused a significant increase in the crime rate. This correlation has resulted in chaos during the anti-government protests in what was referred to as “The Arab Spring” in early 2010, thus creating political instability and numerous other challenges for Egyptians (El Saffy & Lewis, n.d.).
The points mentioned above help us further understand the magnitude of the Russian-Ukrainian conflict on a global spectrum. In today's interconnected world, a crisis between two countries can manifest into many forms of struggles, hardships, and suffering in other parts of the world. This is what the world is witnessing right now, as events related to the Russian-Ukrainian war keep unfolding. The world is experiencing a proper illustration of the ripple effect and state interdependence.
B - Russia’s Oil Supply
Russia is a major world supplier of oil, gas, and fossil fuels. According to Eurostat, 30% of the EU's petroleum oil imports and 39% of total gas imports came from Russia in 2017 (Eurostat, n.d.). Furthermore, Estonia, Poland, Slovakia, and Finland, import more than 75% of their petroleum oils from Russia (Eurostat, n.d.).
Historically, following Russia's invasion of Crimea in 2014, economic expert, Matthew Klein, claims that Europe became more reliant on Russian energy, not less (Mason et al., 2022). In 2021 alone, the EU imported around 45% of its gas from Russia (Eurostat, n.d.). The difference this time is that Europe is united in its opposition to Russia's state behavior (Mason et al., 2022).
All nations that heavily rely on Russia's supply of commodities are at a greater risk of oil supply shortage. However, Europe will take the most significant hit due to their opposition to Russia's invasion of Ukraine (Mason et al., 2022). The EU will witness a harsh economic climate and a decline in FDA, an increase in inflation, and a shortage in gas and oil commodities (Mason et al., 2022).
U.S. Sanctions on Russian Energy
The United States has imposed sanctions on Russia. More specifically, the U.S has launched a world ban movement on the Russian oil sector, as well as a general international trade ban with Russia, in an attempt to exercise its power to gain geopolitical leverage and achieve larger foreign policy goals. In other words, it is in the United States’ best interest that Ukraine becomes a NATO member (Board, 2022).
However, as discussed earlier, Ukraine becoming a member of NATO puts Russia in a weak position due to the strategic location of Ukraine, which borders Russia. This indicates that Russia’s invasion of Ukraine is also a form of exercising geopolitical leverage, as Russia is aware that Europe's dependence on its oil gives it the power to move forward with the war (Board, 2022).
The political motivation behind this war was to prevent Ukraine from joining NATO based on potential threats to Russia.
The Russia-Ukraine conflict took on a true embodiment of the ripple effect as it manifested into more significant world challenges.
The Russian war on Ukraine started an ongoing crisis in the international supply chain network affecting both developed and developing nations.
The Russian-Ukrainian war presented additional world challenges to the prices of oil commodities, raw materials and consumer goods (food etc.)
The U.S used its geopolitical power by imposing economic sanctions on Russia in an attempt to de-escalate the war.
Russia has recently exhausted its geopolitical leverage and stated openness to further international negotiations.
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El Saffy, S., & Lewis, A. (n.d.). Egyptians count rising bread costs as Ukraine war disrupts wheat exports. World Economic Forum. Retrieved March 28, 2022, from https://www.weforum.org/agenda/2022/03/egyptians-rising-bread-costs-ukraine-war-disrupts-wheat-exports/
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