Russia – Ukraine Crisis and Global Implications
The ferocious financial reaction released as the Russia-Ukraine crisis shocked the world, with the former continuing its strikes on crowded Ukrainian cities with long convoys of Russian tanks and other vehicles, is seen around the world, not just on Russian President Vladimir Putin’s face.
According to various news reports, the protracted dispute might harm sectors that rely on the supply of raw materials, particularly industrial commodities, as Russia bears the weight of Western sanctions, which include cutting off several Russian banks from the interbank payments system SWIFT.
Furthermore, the consequences are endangering the global economy, causing financial markets to tremble, and making life more dangerous for everyone. Here are a handful of repercussions:
Chain of Distribution:
Companies are struggling to obtain enough raw materials and components to make items to fulfil growing client demand, thanks to the world’s unexpectedly strong recovery from the pandemic slump. Shortages, transportation delays, and increased pricing have resulted from overburdened factories, ports, and freight yards. Industries in Russia and Ukraine may be disrupted, delaying a restoration to normalcy.
With global transportation already severely hampered following the pandemic, the conflict is likely to exacerbate the situation. Ocean shipping and rail freight are two types of transportation that are likely to be affected. While rail only transports a small percentage of total freight between Asia and Europe, it has been critical during recent transportation bottlenecks and is steadily increasing. Sanctions on Russia are expected to have a significant impact on countries like Lithuania’s rail traffic.
Concerns about supplies, the destruction of physical infrastructure, and sanctions might cause commodity prices to rise.
Agri-commodity prices (wheat, maize, barley, and rapeseed) will skyrocket. Ukraine and Russia jointly account for more than a quarter of global wheat trade and provide 12% of all calories consumed worldwide. Trade disruptions in the Black Sea would put upward pressure on grain prices.
Ukraine accounts for nearly half of sunflower oil exports. Importers will struggle to replace supply if harvesting and processing are hampered in a war-torn Ukraine, or exports are restricted.
With major supply interruptions looming in India, companies have few options but to contemplate raising prices of daily-consumed edible oils within weeks. Over 70% of India’s crude edible oil demand is covered by imports, according to the country’s top edible oil producers.
On top of a fivefold increase last year, gas prices are expected to jump by at least 50% this year. Europe’s gas inventories are low, and there are concerns regarding gas supplies for the northern hemisphere winter season of 2022/23.
Russia is also a key producer of a number of base metals, all of which are expected to see price increases.
An Erratic Rise In Global Inflation
Global inflation will be fueled by higher commodity prices this year and possibly in 2023. It had already predicted worldwide inflation of about 6% this year, but given the enormous rises in commodity prices, that figure is now anticipated to be surpassed. The beneficial impact of higher commodity prices for manufacturers will be negated by rising inflation.
Central banks will face difficult questions as a result of higher pricing. They had begun a monetary tightening programme in order to combat inflation, but they may now be concerned about the impact of the Russia-Ukraine conflict on the post-coronavirus recovery.
Will This Also Have An Effect On The Workforce?
Other countries that rely on trade and business with Russia and Ukraine will undoubtedly be impacted by the crisis and the sanctions. Breaking relations with corporate partners in these two countries will have an adverse effect on ventures in other countries.
European businesses will feel the brunt of the effects. In 2020, the EU will account for 37% of Russia’s worldwide trade. Russia has long been a popular destination for European businesses in a variety of fields, including finance, agriculture and food, energy, automotive, aerospace, and luxury products. Employers will be forced to put projects on hold or cancel them, resulting in furloughs or layoffs as a result of this “knock-on” effect.
Employers must also consider the situation’s emotional impact. Employees who see their coworkers and their families directly impacted by military activities may find it difficult to concentrate on their work. Employers must demonstrate that they are aware of this and are not seen as indifferent to or unmoved by the human consequences.
Imported Inflation And Global Trade Disruptions Will Affect Every Region.
The economic implications in the rest of the world will be seen mostly through an increase in commodity prices, which will exacerbate already existing inflationary pressures. Net importers of energy and food products will be disproportionately affected, as they always are when commodity prices rise, with the threat of substantial supply disruptions looming in the event of a further escalation of the conflict. Global trade will be hampered by the reduction in demand from Europe.
Higher import prices, notably in energy prices, will be felt relatively immediately in Asia-Pacific, with many economies in the region being net energy importers, led by China, Japan, India, South Korea, Taiwan, and Thailand. As North American economic and financial ties to Russia and Ukraine are very limited, the conflict’s impact will be seen mostly through price changes and a slowing of the European economy. Despite the prospect of weaker economic growth and greater inflation, recent geopolitical events in North America are unlikely to derail monetary policy in the near term.
The Tough Path Ahead
Despite being a minor country in terms of global trade, Ukraine is a significant player in a number of commodities. The invasion of Russia will have a direct global impact on products such as sunflower seeds, maize, barley, and wheat, all of which Ukraine has a strong comparative advantage in. Ukraine is also a major producer of a variety of other goods.
The war will exacerbate Covid-19’s already precarious economic situation. The dispute is affecting a large number of businesses. Despite hopes that supply chain issues would be resolved by 2022, they will not. Furthermore, more countries will be affected by inflationary pressures. Furthermore, sanctions are already wreaking havoc on the Russian economy, with the ruble plummeting and businesses eager to sell their assets.