Impact of Russia - Ukraine War on global economy

                        Worldwide impact on Russia- Ukraine war

From the beginning of this year, tension between Russia and Ukraine had started escalating. The tension had pushed up the price of oil and gasoline (major purchase for Americans) as Russia is a major exporter of oil and natural gas. Russia is the largest exporter of wheat and palladium while Ukraine in third largest producer of wheat in world. Moscow is also a major player in nickel, aluminum and other metals. Export restrictions due to conflict and sanctions are likely to significantly affect the prices of these commodities. It was leading factor to cause high inflation in world economy as rate of oil and gas were directly linked with various products in consumer markets. As, China is the major importers of crude oil and major exporters of consumption market in different countries. Hence, disruption in China-Russia trade with the increase in oil price may increase product price of Chinese products and unbalancing the trade balance of several countries. Similarly, with less access to palladium, used to manufacture electronic devices, the price of smartphones and computers will increase.

The major impact of war /potential impact of still ongoing war in world can be listed as:

ØHigher prices for food and energy

ØDisruption in trade of many countries and disruption in supply chain of different multinational industries.

ØEffect on remittance and flow of refugee in other neighboring countries

ØReduced business confidence and higher investment uncertainty in directly involved countries

ØCash outflows and divestment of multinational companies from directly involved countries.

ØEconomy of country largely dependent on tourism may feel additional pressure.

ØFiscal deficit due to inflationary pressure and requirement of subsidies in many countries for fuel and food (Basic Needs).

 

Europe

Russia is a critical source of natural gas in many countries of Europe. So, the war will have direct impact on Europe. The effects of war will increase price of oil and natural gas and slows down the recovery process from pandemic. Many European governments may feel additional pressures for additional spending on energy security and defense budget. Exposures in terms of trade, financial transactions in banking channel, assets in Russian and Ukraine markets, supply chain, remittance, business confidence of investors are largely affected in Europe than any other region of the world.

 

Asia

In Asia, countries having close relations in terms of trade, remittances, investment, and tourism with Russia are largely affected by war. Countries like Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan is largely affected by war due to direct relation with Russia. The economy of large crude importer like China and India and exporters of petroleum products (OPEC countries, Indonesia and Qatar) have favorable effect in terms of imports and exports of oil as a result of boycott of Russian oil (to some extent indirectly) by many countries. However, disruption in trade can have adverse effect on oil importing countries like China too. Asia’s food-price pressures should be eased by local production and more reliance on rice than wheat. However, due to interconnected economy globally, benefitted countries from oil and all other countries are affected indirectly based on the exposure of economy with affected countries in other areas.

 

Africa

In Europe, countries like Egypt that imports about 80% of its wheat from Russia and Ukraine and largely dependent in Russia for tourism are largely affected war. Many countries of Africa (Sudan, Somalia, Congo, Cote D'IVOIRE) are recovering from the effect of domestic war and impact of global pandemic, the effect of high energy and food prices, reduced tourism, lower investors’ confidence and unfavorable foreign investment conditions due to war affects badly.

 

Western Hemisphere (North and South America)

The economy of Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Panama) and Caribbean importers (Bahamas, Haiti, Jamaica) will be hurt due to higher oil prices and commodities. Oil exporters countries such as Colombia, Venezuela, Guyana and Mexico will be benefited from rise in oil prices. With households from Latin America and Caribbean, still recovering from the pandemic, a rise in food prices could result in a further exacerbation of poverty and hunger. With China being critical trading partner for Latin America and Caribbean, disruption in China-Russia trade is likely to be felt in that region. Many countries of this Hemisphere are likely to felt interest rate hike to manage inflationary pressures.