Leading up to a potential Russian invasion of Ukraine has come at a cost. Promise of punishment punishment response by President Biden and the possibility of Russian retaliation yes stock returns push down and increase the price of gasoline.
A frontal assault by the Russian army could cause dizzying spikes in energy and food prices, fuel inflation fears and spooked investors, a combination that threatens investment and growth in economies around the world.
However, the harsh, immediate effects won’t be as devastating as the first sudden economic shutdown caused by the coronavirus in 2020. Russia is a transcontinental giant of 146 million people and a vast arsenal of nuclear weapons, as well as being the main supplier of oil, gas and the raw materials that keep the world’s factories running. But unlike China, a manufacturing powerhouse and tightly intertwined with complex supply chains, Russia is a small player in the global economy.
Italy, with half the population and fewer natural resources, has an economy twice as large. Poland exports more goods to the European Union than Russia.
“Russia is extremely unimportant in the global economy except for oil and gas,” said Jason Furman, a Harvard economist who served as an adviser to President Barack Obama. “It’s basically a big gas station.”
Of course, a closed gas station can be crippling for those who depend on it. As a result, any economic damage would be spread unevenly, violently in some countries and industries, and unnoticed in others.
Europe gets almost 40% of its natural gas and 25% of its oil from Russia, and is likely to be surrounded by spike in heating and gas bills, capital has skyrocketed. Natural gas stocks are running at less than a third of capacity, with weeks of cold weather coming and European leaders accusing Russian President Vladimir V. Putin of reducing supplies to hit political advantage.
And then there are food prices, which have jumped to their highest levels in more than a decade, largely due to the pandemic’s supply chain mess, according to a recent report. United Nations report. Russia is largest supplier of wheat in the world, and with Ukraine, which accounts for almost a quarter of total global exports. For some countries, the dependence is even greater. That line of seeds accounts for more than 70% Egypt and Turkey’s total wheat imports.
This will cause more stress Turkeywhich is in the midst of an economic crisis and is struggling with inflation that is approaching 50%, with prices for food, fuel and electricity skyrocketing.
And as usual, the burden falls on the most vulnerable. “Poor people spend a higher percentage of their income on food and heating,” says Ian Goldina professor of globalization and development at the University of Oxford.
Ukraine, long known as “Europe’s loaf”, actually sends more than 40% of its wheat and corn exports to the Middle East or Africa, where there are concerns that food shortages and continued price increases could cause social unrest.
Lebanese, For example, the country is going through one of the most devastating economic crises in more than a century, more than half of its wheat comes from Ukraine.
Ukraine is also the world’s largest exporter of seed oils such as sunflower and rapeseed.
Analysts have outlined a many situations from light to heavy. The debacle for working-class families and Wall Street traders depends on how an invasion plays out: whether Russian troops stay near the border or attack the Ukrainian capital, Kyiv; whether the fighting lasted for days or months; what Western sanctions are imposed; and whether Putin would respond by withholding vital gas supplies from Europe or launching covert cyberattacks.
“Think of it being rolled out in phases,” said Julia Friedlander, director of the economic regulation initiative at the Atlantic Council. “This can play out like a slow motion drama.”
As has been evident from the pandemic, small disruptions in one area can create large disruptions far away. Isolated shortages and price spikes – whether for gas, wheat, aluminum or nickel – can cause snowballs in a world still struggling to recover from the pandemic.
Additional stresses could be relatively minor in isolation, but they are weighing heavily on economies still recovering from the blows to the economic body caused by the pandemic.
What is clear, Daco added, is that “political uncertainty and volatility weigh heavily on economic activity.”
That means an invasion can have a dual effect – slowing economic activity and increasing prices.
In the United States, the Federal Reserve has faced its highest inflation in 40 years, at 7.5 percent in January, and is expected to start raising rates next month. Higher energy prices due to the conflict in Europe may be temporary, but they could raise worries about a wage price spiral.
“We could see a new round of inflation,” said Christopher Miller, a visiting fellow at the American Enterprise Institute and an assistant professor at Tufts University.
Also fueling inflation fears is the possibility of shortages of essential metals such as palladium, aluminum and nickel, creating another disruption to global supply chains already suffering from the pandemic. truck blockade in Canada and semiconductor shortage.
Price of palladiumFor example, use in car exhaust systems, mobile phones and even dental fillings, has skyrocketed in recent weeks because of concerns that Russia, the world’s largest exporter of the metal, may be cut off from the global market. Prices for nickel, used to make steel and electric car batteries, have also skyrocketed.
It is too early to assess the exact impact of an armed conflict, said Lars Stenqvist, chief technology officer of Volvo, the Swedish truck manufacturer. But he added, “It’s a very, very serious thing.”
“We have several scenarios on the table and we are monitoring how the situation develops day by day,” Stenqvist said on Monday..
The West has already taken steps to lessen the impact on Europe should Putin decide to retaliate. The United States has increased its supply liquefied natural gas and ask other vendors like Qatar to do the same.
Demand for oil could provide additional impetus for negotiate to restore an agreement to limit Irannuclear program of. Iran, which has an estimated 80 million barrels of oil in storage, has been cut off from most of the world’s markets since 2018, when President Donald Trump pulled out of the nuclear accord and reimposed measures. punishment.
Some of the sanctions against Russia the Biden administration is considering, such as cutting off access to the so-called international payments system FAST or block companies from selling anything to Russia that contains American-made components, harming anyone doing business with Russia. But in general, the United States is much less vulnerable than the European Union, i.e. Russia largest trading partner.
Americans, as Mr. Biden warned, are likely to see higher gas prices. But since the United States itself is a major natural gas producer, those price spikes aren’t as steep and broad as elsewhere. And Europe has more links to Russia and is involved in more financial transactions – including payments for Russian gas.
Oil companies like Shell and Total have joint ventures in Russia, while BP brag that it is “one of the largest foreign investors in Europe,” with ties to Russian oil company Rosneft. Airbus, the European aviation giant, buys titanium from Russia. And european bank, Germany, France, and Italy in particular, have lent billions of dollars to Russian borrowers.
Adam Tooze, Director of the Europe Institute at Columbia University, said: “Severe sanctions that hurt Russia painfully and comprehensively have the potential to cause great damage to European customers.
Depending on what happens, the most significant effects on the global economy may manifest only in the long run.
“Russia is likely to turn all its energy and commodity exports to China,” said Carl Weinberg, chief economist at High Frequency Economics.
The crisis also contributed to a reassessment of the global economic structure and concerns about self-sufficiency. The pandemic has highlighted the downsides of living far away supply chain lean manufacturing.
Now, Europe’s reliance on Russian gas is fueling discussions about expanding energy sources, which could preclude Russia’s presence in the global economy.
“In the long run, it will spur Europe to diversify,” said Jeffrey Schott, a senior fellow on international trade policy at the Peterson Institute for International Economics. For Russia, the actual costs “will erode over time and actually make it much more difficult to do business with Russian entities and discourage investment.”
https://www.nytimes.com/2022/02/21/business/economy/ukraine-russia-economy.html What would happen to the global economy if Russia invaded Ukraine?