Russia’s invasion of Ukraine on February 24 2022 has sent the global economy on yet another unpredictable course, just when it was recovering from the Covid-19 pandemic crisis.
It has sent energy prices higher and prompted continued new round of sanctions for Russia which is signalling that even countries out of immediate harm’s way are being affected by what has now become the biggest war in Europe since World War II.
This war is affecting the global economy via five main ways: Financial sanctions, commodity prices, global markets, supply chain disruption and humanitarian crisis.
The United States of America (USA) and its Western allies put severe sanctions targeting Russian banks, its oil and gas industries. Moscow’s ability to use its foreign currency reserves is restricted while the rouble continues to depreciate. Some countries have expelled Russian diplomats to show solidarity with Ukraine while Russian oligarchs have been prohibited entities. Most Western companies have also voluntarily curtailed their operations in Russia.
More sanctions are expected to follow in response to what US President Joe Biden said is “a needless aggression against Ukraine and global peace and security”.
Europe depends much on trade with Russia, especially energy and sanctions have direct consequences on its economy as compared to the USA. There is a collateral damage from sanctions on Russia.
Experts say it is hard to predict which way the situation will go as it might depend on its length, severity of sanctions and the possibility that Russia might retaliate. Already, the Kremlin has suspended gas exports to Bulgaria, Poland and Finland.
Russia exports 40 percent of natural gas to the European Union (EU). Natural gas prices increased by 20 percent after the war started and are now six times higher than they were at the start of 2021.
Fuel prices have surged too due to concerns about disruptions to global supply and this is being passed over to consumers at the pump.
Here at home, the Malawi Regulatory Energy Authority (Mera) has increased fuel prices a number of times since the invasion, triggering price increase of essential commodities and transport costs.
With wheat and fertiliser prices also skyrocketing, experts are fearing a looming famine as fighting rages in a region known as the world’s breadbasket. Russia and Ukraine export a lot of wheat, corn, fertiliser and sunflower oil to Europe, Africa and the Middle East .The war is directly affecting world’s poorest countries by pushing families towards poverty and hunger, according to the World Food Programme.
The conflict has exacerbated Covid-19 supply chain backlogs and high inflation that came along with it. The war has rattled investors and most markets across the globe have dropped. Stock markets have been unusually volatile and inflation is rising. The Word Trade Organisation said the conflict could almost halve the world trade growth this year and drag down the global gross domestic product.
Disruptions of supply chains
The war has disrupted global supply chains and trade as companies are struggling to find financial channels through which to conduct trade with Russia. The destruction of some transport infrastructure notably ports in Ukraine have compounded existing supply-chain issues, adding pressure to the global logistics and transportation network, resulting in difficulties accessing land-based routes, restrictions on air links and the cancellation of sea freight routes from Ukraine.
Wars are brutal and ugly. Already, thousands of lives have been lost and millions of livelihoods disrupted through displacement, lost homes and lost incomes. The United Nations High Commissioner for Refugees (UNHCR) said over five million people have fled Ukraine and almost seven million are internally displaced.