The global economy is about to be sent on yet another uncertain route by an armed battle on Europe’s border, after being pummelling by the epidemic, supply chain chokeholds, and price jumps.
The tensions were high even before the Kremlin ordered Russian troops into Ukraine’s rebel territory on Monday. President Joe Biden’s threat of punitive measures in return, as well as the possibility of Russian reprisal, had already drove down stock returns and pushed up petrol costs.
An open attack by Russian forces may generate dizzying price jumps in energy and food, stoke inflation fears, and frighten investors, posing a threat to global investment and growth.
Regardless of how severe the consequences are, they will be far less severe than the coronavirus’s initial economic shutdowns in 2020. With 146 million people and a massive nuclear arsenal, Russia is a transcontinental behemoth as well as a major source of the oil, gas, and raw materials that keep the world’s factories operating. Russia, on the other hand, is a modest player in the global economy, compared to China, which is a manufacturing powerhouse with sophisticated supply lines.
With half the population and fewer natural resources, Italy boasts a twice-as-large economy. In comparison to Russia, Poland exports more items to the European Union.
Of course, for those who rely on it, a closed gas station can be devastating. As a result, any economic harm will be unevenly distributed, with some countries and industries suffering greatly while others go unnoticed.
Europe, which imports about 40% of its natural gas and 25% of its oil from Russia, is likely to be hit hard by increases in heating and gas prices, which are already high.
Then there are food prices, which, according to a recent United Nations report, have risen to their highest level in more than a decade, owing largely to the pandemic’s supply chain mess. Russia is the world’s largest wheat exporter, accounting for nearly a quarter of total global exports with Ukraine. Some countries are significantly more reliant than others. This grain movement accounts for more than 70% of Egypt’s and Turkey’s total wheat imports.
Analysts monitoring the situation have devised a series of scenarios ranging from moderate to severe. The impact on working-class families and Wall Street traders will vary depending on how the invasion unfolds: whether Russian troops remain near the border or attack Kyiv, the Ukrainian capital; whether the fighting lasts days or months; what kind of Western sanctions are imposed; and whether Putin responds by halting critical gas supplies to Europe or launching stealth cyberattacks.
The Federal Reserve in the United States is already dealing with the highest inflation rate in 40 years, at 7.5 percent in January, and is poised to raise interest rates next month. Higher energy prices triggered by a European war may be temporary, but they could fuel fears of a wage-price spiral.
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