A brief summary of the Russian-Ukraine dispute, its history, economic and political impact.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

A brief summary of the Russian-Ukraine dispute, its history, economic and political impact.

“Yet another interruption to deal with.., global economic softening.., could this be a World War 3;” these are just a few of the probable headlines that have surely filled morning notifications around the world. In a post-pandemic world, analysts and economists hurry to express their perspectives on the global upheaval, it’s a difficult circumstance that practically all economists anticipated. While the US government threatened increased sanctions against Russia, Ukraine was ready for the war, based on the years of conflict with the Russians. With Ukraine facing its own Goliath, we see former military personnel taking up arms to defend their homeland, while Ukrainians display more rage than fear. In the first week of the conflict, not just Ukraine, but the rest of the globe is reeling from the global repercussions of this disaster, which could cripple the global economic and political system.

[box type=”shadow” align=”” class=”” width=””]EU faces a tectonic shift in geopolitics

Some analysts believe this is the largest invasion since World War II, and Europe believes that the war has had a cascading effect on the rest of the world. Several believe that peace in mainland Europe will be a thing of the past, added to which the complete trust in Russia has evaporated. This can be seen with the large exodus of multinational firms dumping their assets in Russia, such as BP, Shell, HSBC, AerCap and a major Norwegian sovereign wealth fund. The war has destabilized Europe and may have an impact on other regional conflicts, such as China’s disputed claim to Taiwan. Germany would send lethal weapons to Ukraine, per reports and is now pressurized to reequip its army, with a recent report suggesting that it will spend greater than 2% of its GDP on its military. Poland and Hungary, two nations that initially saw a surge of refugees from Syria, now finds its doors open for Ukrainians.[/box]

Ripping open age-old wound: A conflict-ridden history

Vladimir Putin, the Russian president, believes that Ukraine, which is sandwiched between his country and Europe, has always been a part of Russia. Several websites, including National Geographic, claim that Kyiv, Ukraine’s capital, was the birthplace of the Slavic state Kyivan Rus, which ruled Ukraine and Russia. And the country remained virtually a member of the Soviet Union until 1991, when the Cold War ended. Ukraine is reported to have a weak economy and to have swung back and forth between pro-Russian and pro-European policies. In essence, the struggle in President Putin’s head occurred as Ukraine moved closer to the EU and NATO in the last decade, following two revolutions in 2005 and 2014, and accidentally became a threat to the Russian premier. At the time of the invasion of Crimea in 2014, he expressed concern about NATO military hardware being stationed near Russian borders, which fueled talk of a US-led transatlantic alliance. Today, President Putin’s attempt to combine with Ukraine, as we see it, may be following in the footsteps of Russia’s former rulers, such as Josef Stalin and Peter the Great.

History also demonstrates that antipathy for the Soviet Union stems from Stalin’s 1930s ‘great famine’ in Ukraine, which resulted in the deaths of millions of people. Anti-Russian sentiment only grew after 2014, when pro-Moscow insurgents seized Crimea and took control of the Donbas region. And it is in this region that Russia has increased its military footprint, signifying the start of a new war for regional domination.

The Economic Impact of the War

Ukraine, dubbed the “breadbasket of Europe,” is one of the world’s largest wheat exporters, sending more than 40% of its wheat and corn to the Middle East and Africa. Additional food shortages and escalating social instability will wreak havoc on countries like Turkey and Lebanon. Apart from wheat, Ukraine is also the largest supplier of corn to these nations and China.

Oil and gas have historically been abundant in Russia and Ukraine. Russia holds the world’s greatest gas reserves and provides almost a third of Europe’s natural gas. The $11 billion Nord Stream 2 gas pipeline crossing the Baltic Sea would bypass Ukraine, costing the country roughly $ 2 billion in transit fees. Russia owns 5% of the world’s total crude oil reserves. Europe is reliant on Russia for approximately 40% of its natural gas and 25% of its oil.

Inevitably the global supply chain of oil seems to be impacted significantly, as it recovers from the pandemic. President Joe Biden’s message to impose sanctions on Russia already sent panic waves across the stock markets, drove up gas prices. Food prices have been steep for the past two years due to the pandemic-induced supply chain, and Russia is also the largest supplier of wheat, hence the dependence is much greater.

Consequently, spikes in energy and food prices because of an attack threatens the already staggered recovery of economies across the world. Some experts believe though, that the impact of the war may not be as devastating as the lockdowns had on the global economy, two years ago.

 

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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