Impact of Russia-Ukraine Conflict
The beginning of 2022 brought with it new (and old) international problems, one of those being a flare up between Russia and Ukraine. Ukrainian independence has long been a sore spot for Russia as Russia believes much of Ukraine to be rightfully theirs. Just a few years ago, Russia annexed a large area of Ukraine called Crimea, and has set their sights on more of eastern Ukraine. As the threat of a Russian invasion into Ukraine looms, many are discussing the potential implications worldwide of such a conflict.
Russia is a huge energy exporter--the largest natural gas exporter and the third largest oil exporter in the world. The US is considering placing crippling sanctions on Russia if Russia decides to invade Ukraine, to which Russia would likely retaliate. In a worst case scenario, they could cut off energy supplies to NATO allies and others. If Russia’s exports become limited as a result of US sanctions or Russia’s own decisions, energy markets worldwide will be impacted (Lane, 2022). The US, thanks to its large energy reserves, may not be substantially impacted, but Europe will definitely hurt. Energy prices are already high, and they could rise even more if Russian supplies are limited. Already increasing global inflation rates as a result of Covid could also be sped up, and global supply chains could be further disrupted. Although the likelihood of a large hit to US markets is small, there could be a large impact on global energy markets. Europe is likely to see some large impacts if Russian energy exports are affected. Russia provides Europe with ⅓ of its natural gas. The Nord Stream pipeline, which the US has been against from the beginning, connects Europe with Russia making the continent heavily dependent for its energy supplies.The pipeline gives Russia enormous leverage against sanctions because of Europe's dependency; it runs all the way from northwestern Russia to Germany. As of late, Europe has been getting more gas from the US and the middle east, but if supply from Russia were to be completely cut off, the results would be devastating.
Obviously, if this conflict turns into war, there would be much larger negative impacts around the world, including in the US. Going to war for any country would mean declines in world markets for many goods, and there would be significant costs to consider. However, in the more likely scenario, if US sanctions were to become more aggressive, one impact could be that Russia looks even more toward China. In this case, US technology sectors could be negatively impacted in the long run as Russia would obtain what it previously did from China instead of the US. Another market that could be impacted by Russia’s actions is wheat. Russia and Ukraine together export 29% of the world’s wheat (Pattidomm, 2022). This could potentially mean a shortage for people across the globe.Conflict, and of course war, can lead to huge disruptions in unanticipated markets.
The two countries most involved in this conflict have already begun to feel the effects of the tension. Both the Ukrainian hryvnia and Russian ruble have performed poorly this year. The hryvnia is down 4% against the US dollar, and last month, the ruble hit a new low since 2020 (). The US government is encouraging citizens to exit the country amidst the rising tensions, which has led many investors to suspend their plans. The European Union has sent over a billion dollars in aid to Ukraine in an attempt to minimize the economic impacts of the threats from Russia. However, for the time being, Ukraine is considered way too risky of a place to invest, so the Ukrainian government is attempting to prevent any panic and try to keep the markets from declining.
All international tension has the potential to impact world markets, and when a large energy exporter is involved, there is room for concern. The largest potential impacts would likely be seen by the European Union if tensions were to come to a head. Before even considering the potential for Russian Cyber attacks in response to sanctions, at the very least, world oil and natural gas markets would surely take a hit.
Edited by Stephen Adams
Works Cited
Lane, A. G. and S. (2022, February 3). How a Russian invasion of Ukraine could impact Americans economically. TheHill. Retrieved March 3, 2022, from https://thehill.com/policy/finance/592562-how-russia-invasion-ukraine-impact-americans-economically.
Luxmoore, M., & Kantchev, G. (2022, February 1). Ukraine's economy braces for impact as war with Russia looms. The Wall Street Journal. Retrieved March 3, 2022, from https://www.wsj.com/articles/ukraines-economy-braces-for-impact-as-war-with-russia-looms-11643720593.
Pattidomm. (2022, February 3). A Russian invasion of Ukraine could send shockwaves through financial markets. CNBC. Retrieved March 3, 2022, from https://www.cnbc.com/2022/02/02/a-russian-invasion-of-ukraine-could-send-shockwaves-through-financial-markets-heres-how.html.
