With Putin's recognition of two separatist territories yesterday, coupled with new sanctions imposed by the United States, conflict between Russia and Ukraine seems to be inevitable at this point. This has many wondering what the effect war will have on the global economy, with a particular focus on Russia. Although Russia has vast supplies of oil, gas, and other raw materials, as a global player the Russian economy is fairly weak. As stated by the authors of the article "Italy, with half the size and fewer natural resources, has an economy that is twice the size [of Russia's economy]. Poland exports more goods to the European Union than Russia."
However, Russia's hold on the European gas market could mean higher gas prices, not only at the pump but in houses and factories. Europe gets almost 40% of its natural gas from Russia, explaining the German hesitance earlier in the crisis to cut off access to the Nord Stream 2 pipeline, although they have since changed their position. Additionally, Russia is the world's largest exporter of wheat, much of which goes to Turkey and Egypt - countries struggling with internal problems of their own.
When taken into context with the post-pandemic recovery, which still experiences supply chain issues along with rising inflation. The price of gas rising, for example, could through another wrench into the works. Metals like palladium, nickel, and aluminum have seen their prices rise as fears of losing Russian resources increase. The U.S. is attempting to counter this by increasing natural gas deliveries, for example, but this won't be enough to fully mitigate any effects of war.
The long run effects of conflict would be the most shocking. Some economists believe that sanctions will force Russia into the open arms of China, as the two nations signed a contract to build a new pipeline. Additionally, Europe will have to look for new markets. As Russia's largest trading partner, any conflict in Ukraine will impact the EU heavily.
https://www.nytimes.com/2022/02/21/business/economy/ukraine-russia-economy.html
Trouble i Ukraine will definitely have a negative impact on the EU, especially if the supply of oil and natural gas from Russia is disrupted. Germany imports almost 34% of its crude oil from Russia and its natural gas flows from a singular Russian pipeline. Germany could look to the United States and Qatar to make up for its potential supply shortages. On the flip side, this conflict could force the EU to reduce its energy dependence on Russia in the long run.
ReplyDeleteThe tensions between Ukraine and Russia will hurt the global economy as a whole. Oil and gas prices will inevitably rise due to the supply that Russia has being disrupted by the sanctions the U.S. has had and will continue to have in place. I predict the U.S. will sadly again... intervene with the conflict which will create more economic turmoil in the future.
ReplyDeleteI thought it was very interesting how you addressed several implications of the conflict and the complexities of it. This is not just an issue between Russia and Ukraine, but also on the economies of all European countries, and perhaps on an even broader spectrum of the world. It is also scary that this is happening in the post-pandemic atmosphere where supplies of everything are already very low.
ReplyDeleteAs we saw in class the other day, the market did take a hit as soon as Russia invaded Ukraine, but gradually recovered the next day. Gas prices will definitely be interesting to watch going forward. The thing I think that will create complications if Russia continues is the fact that Germany imports natural gas from Russia.
ReplyDeleteWhile the oil and gas prices had recovered on Friday, the support from different nations for Ukraine can cause a change in the future. If nations were to impose sanctions on Russia as Ukraine wants, it will result in disruption of global supply chains and lead to inflation and possible recession. It will be interesting to see if other nations actually decide to help Ukraine.
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