4 ways Russia is destroying the global economy

Vladimir Putin has waged war on only one country, Ukraine, but the Russian president’s fierce military campaign is punishing people in many countries, including some of the world’s most vulnerable. With no end in sight, the economic toll of the war could become devastating in some parts of the world by the middle and end of 2022.

The economic shock caused by Russia’s invasion of Ukraine on February 24 will radiate wider and deeper as the Ukrainian economy fluctuates and sanctions stifle Russian and Belarusian exports. Ukraine’s production may fall by 45% This year, according to the World Bank, Eastern Europe experienced a recession of 4.1%. Western Europe Maybe heading into a recession too. For its part, Russia has stopped publishing some economic data but it is also facing a deep recession. The US does not appear to be heading into a recession at the moment, but growth is slowing and consumers are pessimistic.

Poorer countries in Africa, the Middle East, and Asia may suffer more than Europe or the United States. Russian aggression is hitting the whole world in four main ways:

energy. Russia is the world’s third largest producer of oil and natural gas, and many countries are trying to restrict or halt Russian energy purchases and deprive Moscow of much-needed energy revenues. Sanctions have already limited some Russian energy sales, but higher prices mean Russia still generates significant energy revenues. That’s why Europe is working on a full embargo on Russian oil sometime this year. Under a best-case scenario, this could drive up oil prices and increase US gasoline prices above $5 a gallon on average. The rise in energy prices in Europe, which is more dependent on Russian energy, was even more severe. A full power shock can still occur, with prices rising dramatically.

food. The damage to global food markets has been less immediate, but some experts warn that disaster looms. Before the Russian invasion, Ukraine produced 30% of the world’s sunflower oil, 6% of barley, 4% of wheat and 3% of corn.. Russia has imposed a blockade of all of Ukraine’s Black Sea ports, which is the main way Ukraine exports food to the rest of the world. Nothing is moving through those ports. Rail and road links to Europe cannot transport all of Ukraine’s production. This cuts off the current supply. The war itself could also reduce plantings of future crops by 10% to 35%, according to estimates.

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Russia is also a major exporter of sunflower oil, wheat and barley. There are no direct sanctions on Russian food exports, but broad sanctions on other parts of the Russian economy are cutting off those shipments. Fertilizers are another problem, because Russia is the largest exporter of nitrogen fertilizers, and the Russian government has suspended exports. Russia and Belarus, close allies who themselves have threatened Ukraine, are major producers of potash, a major component of many fertilizers. The sanctions affect potash supplies from both countries.

Residents shop at the wholesale market ahead of the holy month of Ramadan, amid soaring prices for commodities such as cooking oil and wheat, after the Russian invasion of Ukraine, in Baghdad, Iraq, March 31, 2022. REUTERS/Alaa Al-Marjani

Residents shop at the wholesale market ahead of the holy month of Ramadan, amid soaring prices for commodities such as cooking oil and wheat, after the Russian invasion of Ukraine, in Baghdad, Iraq, March 31, 2022. REUTERS/Alaa Al-Marjani

Higher energy prices also increase the cost of food production, as agriculture and transportation become more expensive. Since the start of the Russian invasion, wheat prices It jumped about 30%. Sunflower oil, used for cooking in many places, is up about 50%. Global fertilizer costs are up 230%, portending future food price hikes, or lower yields by farmers who reduce fertilizer use.

Developed countries will be able to absorb the rising prices and find alternative solutions, such as new sources of required food. Developing countries will suffer more. A new report from the group Eurasia and Sustainable Strategies DevryBV estimates that the Ukraine war alone could increase the number of food insecure people by 101 million by the end of 2022. The number of people living in extreme poverty could rise by as much as 201 million. The effects will be worse in parts of Africa, Asia and the Middle East, which get much of their subsistence food from Ukraine and Russia.

Other producers could eventually make up for the food supplies lost by the Russian invasion. As we have learned from the COVID pandemic, supply chains built over decades cannot be reconfigured in a month. Some countries are fortunate enough to have internal supplies that they can draw on, but many rely on food from elsewhere.

“The problem is not a shortage of wheat,” said crop consultant Sarah Taber Books on Foreign Affairs in April. “It’s a lack of enough ships to move them — and a lack of money to buy them.”

Destabilization. Russia may not mind that its brutality in Ukraine causes difficulties around the world. Rüdiger von Fritsch, who spent a decade as Germany’s ambassador to Poland and then Russia, In an interview with Der Spiegel magazine recently, That “Putin calculates that after the collapse of grain supplies, the hungry will flee these regions and try to reach Europe. He wants to destabilize Europe with new flows of refugees and intensify political pressure until Western countries abandon their hard line against Russia. This is his new hybrid war” . It would be similar to the strategy followed by Russia after it joined the Syrian government’s side in the brutal civil war there, which has led to more than 13 million refugees fleeing to Europe and elsewhere.

The Vaja Maersk container ship docks in the Russian port of Saint Petersburg on April 18, 2022. REUTERS/Photo

The Vaja Maersk container ship docks in the Russian port of Saint Petersburg on April 18, 2022. REUTERS/Photo

shipping. COVID is wreaking havoc on the world’s sea lanes, and Russia’s militarization is now causing additional solutions. About 11% of the global shipping workforce is from Russia, and 4% from Ukraine. Possible wartime sanctions and obligations could cause labor shortages and exacerbate port congestion in some areas. Much of the Black Sea is off-limits to commercial shipping, given the Russian blockade of Ukraine and insurers’ reluctance to write policies for routes anywhere near a war zone. Shipping lines still ship non-sanctioned goods in and out of Russia, to fulfill contracts, but most indicate they will stop shipping once contracts expire. It will hurt Russia – pretty much the point of sanctions – but it will cause unrest elsewhere as well.

Russia’s war in Ukraine is clearly unpredictable, and could end unexpectedly if someone ousts Putin or Ukraine achieves a series of battlefield successes that seem out of reach at the moment. One day, the markets may enjoy a massive rally as the path to peace appears. But until then, collateral damage is likely to spread to the global economy as fighting continues on the battlefields. In this way, Putin’s war against Ukraine is a war against much of the world.

Rick Newman is the author of four books, including “Rebounders: How winners pivot from setback to success.Follow him on Twitter: @Regignyuan.

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