Russia Ukraine War Impact On Global Economy

Russia Ukraine war has undoubtedly affected lives on millions of people but how can be forget that every war brings a large impact on the global economy too. And this Russia Ukraine war also has had some impact on the global economy.

Slower Economic Recovery from the Pandemic

Before Russia invaded Ukraine, projections estimated global economic growth in 2022 would be around 5 percent. The war in Ukraine was a “massive and historic energy shock” to the markets, according to a November 2022 report by the OECD. The “shock” of the war was one of the main factors that had slowed economic growth in 2022 to just 3.1 percent, and why the OECD projected it to slow to 2.2 percent in 2023. The war, the report found, has had the greatest impact on Europe's economy, where growth in 2023 is projected to be just 0.3 percent.

A Massive Investment in Ukraine

In September 2022, the World Bank estimated that the cost of rebuilding Ukraine would be about $349 billion, a number that is larger than Ukraine's pre-invasion GDP and three-times greater than all the military, humanitarian, and financial assistance commitments to Ukraine since the start of the war, and is certainly much higher now.

Ukraine demands reparations, which seem unlikely to occur; instead, Russia appears to be preparing for a longer and larger-scale conflict. As of June 2022, the allies has seized $30 billion in assets owned by the Russian elite and frozen $300 billion owned by the Russian central bank. It may be possible to transfer some of this to Ukraine, but the law on doing so needs to be explored, and the amounts involved would remain short of what is or will be necessary. Whether Ukraine and its Western allies will ever be able to compel Russia to pay reparations will depend on the outcome of the war.

Europe's Reliance on Russian Energy Is Over

For decades, from the Soviet Union right up until the moment Russia invaded Ukraine, Russia and much of Europe were bound together in a hydrocarbon marriage of convenience. Russia needed stable energy markets for its oil and gas exports; Europe wanted energy supplies delivered directly by pipeline, which would reduce its dependence on supplies from the Middle East—a market that was not stable, with supplies that were carried by ship. The European market became Russia's biggest customer: in 2022, before the invasion, 60 percent of its oil exports went to Europe, and 74 percent of its dry natural gas, according to the International Energy Agency.

After the fall of the Soviet Union, Europeans believed that their energy purchases from Russia would assist Russia's development, while also giving Europe leverage—such a large, important customer could discourage Russia's worst impulses, was the thinking. In fact, the export of Russian energy—gas, in particular—enabled Russia to expand its influence. Countries like Germany, Finland, Latvia, Bulgaria, North Macedonia, Serbia, Bosnia and Herzegovina, Moldova, Hungary, Slovakia, Slovenia, the Czech Republic, Greece, and Austria all became dependent upon Russia for at least half of their gas supply.

 

A Re-Creation of the Cold War Economy

Exports of oil and gas were Russia's primary economic interaction with the West. These exports are unlikely to be restored to pre-invasion levels. Still, Russia remains the world's largest exporter of wheat and forestry products, and a source of strategic resources such as nickel, cobalt, and platinum. Regardless of the outcome of the war, Western companies will remain reluctant to return to Russia, or invest in it in the future. The risks are simply too high.

The current situation virtually re-creates the Cold War division of the global economy in certain sectors, only now, Russia is at a greater disadvantage, since it no longer operates in the larger space of the Soviet bloc (the Council for Mutual Economic Assistance—COMECON) whose one-time members are now members of the EU and NATO.