Four ways Russia is disrupting the global economy

Vladimir Putin has only waged war on one country, Ukraine, but the Russian president’s vicious 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 be devastating in some parts of the world by mid and late 2022.

The economic shock of Russia’s February 24 invasion of Ukraine will be wider and deeper as Ukraine’s economy falters and sanctions stifle Russian and Belarusian exports. Production in Ukraine could fall by 45% Eastern Europe has contracted by 4.1 percent this year, according to the World Bank.Western Europe is may also go into recession. In the case of Russia, it has stopped releasing some economic data but is also facing a severe recession. The U.S. doesn’t appear to be in recession right now, but growth is slowing and consumer sentiment is subdued.

Poorer countries in Africa, the Middle East and Asia are likely to suffer more than Europe or the United States. Russian aggression hit the world in four main ways:

vitality. Russia is the world’s third-largest producer of oil and gas, and many countries are trying to limit or halt Russian energy purchases and deprive Moscow of much-needed energy revenue. Sanctions have restricted some of Russia’s energy sales, but higher prices mean Russia is still earning significant energy revenue. That’s why Europe is working to phase out a total embargo of Russian oil sometime this year. In the best-case scenario, that could still push up oil prices, which on average are above $5 a gallon in the US. Energy prices in Europe, which is more reliant on Russian energy, have risen much more. A full-blown energy shock is still possible, with bigger price increases.

food. The damage to world food markets is less immediate, but some experts warn disaster is looming. Before the Russian invasion, Ukraine produces 30% of the world’s sunflower oil, 6% of barley, 4% of wheat and 3% of corn. Russia has blocked all of Ukraine’s Black Sea ports, which are the main way Ukraine exports food to the rest of the world. Nothing goes through these ports. Rail and road connections to Europe cannot divert all Ukrainian production. This is cutting current supply. It is estimated that the war itself could also reduce future crop acreage by 10 to 35 percent.

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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 areas of the Russian economy are cutting those exports. Fertilizers are another issue, as Russia is the largest exporter of nitrogen fertilizers and the Russian government has stopped exports. Russia and Belarus, close allies posing a threat to Ukraine, are both major producers of potash, a key ingredient in many fertilizers. Sanctions are affecting potash supplies in both countries.

Residents shop at a wholesale market ahead of the fasting month of Ramadan in Baghdad, Iraq, after Russia's invasion of Ukraine, March 31, 2022, as prices for commodities such as cooking oil and wheat rise.  REUTERS/Alaa Al-Marjani

Residents shop at a wholesale market ahead of the fasting month of Ramadan in Baghdad, Iraq, after Russia’s invasion of Ukraine, March 31, 2022, as prices for commodities such as cooking oil and wheat rise. REUTERS/Alaa Al-Marjani

Soaring energy prices have also pushed up the cost of food production, as it has become more expensive to grow and transport. Since the beginning of the Russian invasion, wheat price It has risen about 30%. The price of sunflower oil, which is used for cooking in many places, has risen by about 50%. Global fertilizer costs have risen by 230%, signaling higher food prices in the future, or lower fertilizer use by growers leading to lower yields.

Developed countries will be able to absorb price increases and find solutions, such as new sources of needed food. Developing countries will suffer more.A sort of New report on Eurasia Group and DevryBV’s sustainability strategy It is estimated that the war in Ukraine alone could increase the number of people suffering from food insecurity by 101 million by the end of 2022. The number of people living in extreme poverty could increase by as much as 201 million. The impact will be more severe in parts of Africa, Asia and the Middle East, which receive large amounts of subsistence food from Ukraine and Russia.

Other producers could eventually make up for food supplies lost to the Russian invasion. However, as we’ve learned from the COVID pandemic, supply chains built over decades cannot be reconfigured in a month. Some countries are lucky to have in-house supplies to tap, but many rely on food elsewhere.

“The problem isn’t a lack of wheat,” says crop consultant Sarah Taber wrote in foreign policy in april“There’s a lack of enough ships to ship it — and a lack of money to buy it.”

unstable. Russia may not mind that its atrocities in Ukraine are causing difficulties globally. Rüdiger von Fritsch, German ambassador to Poland and Russia for ten years, recently told Der Spiegel “Putin’s calculation is that after food supplies collapse, starving people will flee these regions and try to reach Europe. He wants to destabilize Europe with a new wave of refugees and increase political pressure to get the West to abandon their hardline stance on Russia. . This is his new hybrid war.” That would be similar to the strategy Russia has pursued after backing the Syrian government’s brutal civil war that saw more than 13 million refugees flee to Europe and elsewhere.

Vaga Maersk container ship moored in the port of St. Petersburg, Russia, on April 18, 2022.Reuters/Reuters photographer

Vaga Maersk container ship moored in the port of St. Petersburg, Russia, on April 18, 2022.Reuters/Reuters photographer

Shipping. COVID has distorted the world’s sea lanes, and Russian militarism is now sparking more workarounds. About 11% of the world’s shipping workforce comes from Russia and 4% from Ukraine. Sanctions and possible wartime obligations could lead to worker shortages and exacerbate port congestion in some areas. Much of the Black Sea has banned commercial shipping, given Russia’s blockade of Ukraine and the reluctance of insurers to create policies for any shipping routes near the war zone. Trucking companies are still moving unapproved cargo into and out of Russia to fulfill contracts, but most say they will stop shipping once contracts expire. This will hurt Russia – mainly the sanctions point – but also wreak havoc elsewhere.

Russia’s war in Ukraine is decidedly unpredictable, and it could end unexpectedly if someone deposes Putin or if Ukraine achieves a series of currently distant victories on the battlefield. One day, the market could see a huge relief rally as the road to peace emerges. But until then, collateral damage to the global economy is likely to spread as fighting on the battlefield continues. For that matter, Putin’s war on Ukraine is a war on most of the world.

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

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