On April 13, US President Joe Biden presented a sad economic conclusion: the Russian invasion has been the cause of a 70% rise in world food and gasoline prices.
RussiaVsWorld analyzes the financial risks to the world posed by Russia’s actions.
The global economy is the intertwinement of commercial links. Russia’s invasion triggered a series of chain reactions, which are already being felt by the people of the world.
In general, the economic consequences of this war can be divided into three categories:
- destruction of Ukraine’s infrastructure;
- disruption of transport;
- manipulating with energy resources.
Negative impact: Energy.
It’s clearer with energy resources. Siberian oil and gas was addressing its two problems for Russia for years:
- accumulating funds for the war, and
- influencing politics by rewarding or discriminating buyers, especially across Europe.
Long before the war, Russia created an artificial gas shortage at the time when the Asia market grew faster than usual. It lukewarmly filled European storage facilities, making excuses of renovation works. At the same time, Russia lured Germany and other countries into a dream of gas transit on seabed when the existing overland pipelines were underloaded. Similarly, OPEC+ where “+” is Russia was meant to undermine human rights and women rights discourse with the Arab countries. The energy topic is worth a separate article.
The first two bullets have become the new causes that have the potential to put the global macroeconomic stability offbalamce and thus to trigger a financial crisis. Hence, we will talk about the first two categories of risks and consequences for the world.
For almost two months now, Russia has been carrying out air strikes throughout Ukraine. When it retreated from northern Ukraine, having sustained heavy losses near Kyiv, it switched from the airstrikes on military and arms to targeting the destruction of civilian infrastructure across Ukraine.
Besides, Russia occupied large swathes of arable land in the south. Where it retreated it left land mines, in particular, those that target agribusiness.
The second aspect is transport. Russia blocked the Ukrainian ports including the one in Mykolaiv that’s managed by a Qatari concessionaire. Ukraine’s main exports that are now blocked are metallurgy and agricultural products.
Ukraine is trying to export them across the western borders overland, but it’s difficult due to a significant increase in congestion at the border.
Another issue is that the Russians blocked transit by trucks and by rail, that is, they actually blocked the transit between Asia and Europe.
There are two transport corridors through Ukraine, and both are currently unavailable:
- Asia – Europe by railways and pipelines, and
- Asia – Black Sea – Mediterranean countries by railways/pipelines to ships.
Starting in 2020, there has been a significant increase in rail traffic between China and the EU. The reason was that many seaports were closed amidst the COVID pandemic.
Since 2021 Russia has been developing a transport corridor through Belarus, but it didn’t gain much traction because of poor infrastructure and Belarus’ lack of respect for democracy and human rights.
The Russian invasion of Ukraine made logistic trade routes that involve Russia impossible to use. Asian shippers try to use the Caspian Sea and Turkey, bypassing Russia.
Negative impact: Food prices and agribusiness
RussiaVsWorld has already written in detail about the food crisis fueled by the Russian invasion, not least because Ukraine is one of the main grain exporters in the world.
Given that the majority of exports Ukraine sent through ports that are blocked by Russia, the above regions are currently threatened by a shortage of grain. This has already increased the prices of wheat, corn and sunflowers. The secondary effect on growing farm animals has been felt as well, given that some of Ukraine grains are used as the fodders.
Negative impact: Metallurgy
Ukraine is within 15 largest exporters of iron and iron ore, whose main consumers are in South East Asia including China. These exports also stopped due to the same blockade of the Black Sea. Rising steel prices are affecting the world market.
Negative impact: Electronics
Here we will talk about neon. Yes, it is the same gas that is used in lighting. But its most important use is in chip manufacturing. Ukraine produces half of all neon in the world. Its price already quadrupled on the world market. Neon supply disruptions can lead to shortages of electrical equipment and significant price increases.
Negative impact: Jobs
By declaring a de facto railway blockade of Europe, Russia stopped the feasibility of a number of infrastructure projects. After all, for years terminals have been built in Eastern Europe to increase the volume of transit traffic through Ukraine. Now they are idle (for example, in Dobra (Slovakia). The same fate now awaits the multimodal terminal in Feneslitka, which Hungary is building on the border with Ukraine and the terminals built in Budapest.
When the war continues on the bridge of two continents and involves one of the largest countries, it is impossible to think that this war does not affect anyone in the world. The world is just beginning to feel the effects of the Russian invasion of Ukraine. However, it is important to remember who started this war and is responsible for future food, humanitarian and energy crises.