4 ways Russia is wrecking the global economy

Vladimir Putin has launched a war on just one nation, Ukraine, but the Russian president’s vicious military campaign is punishing people in many countries, including some of the world’s most vulnerable. With no end in sight, the war’s economic toll could become devastating in some parts of the world by the middle and end of 2022.

The economic shock waves from Russia’s Feb. 24 invasion of Ukraine will radiate wider and deeper as Ukraine’s economy teeters and sanctions choke off Russian and Belorussian exports. Ukraine’s output could sink by a devastating 45% this year, according to the World Bank, with eastern Europe suffering a recessionary 4.1% decline. Western Europe is probably headed for a recession too. Russia, for its part, has stopped publishing some economic data but is also facing a deep recession. The United States does not seem bound for a recession at the moment, but growth is slowing and consumers are gloomy.

Poorer countries in Africa, the Middle East and Asia could suffer more than Europe or the United States. Russia’s aggression is hitting the whole world in four principal ways:

Energy. Russia is the world’s third-largest oil and natural gas producer, and many nations are trying to limit or halt Russian energy purchases and deprive Moscow of badly needed energy revenue. Sanctions have already limited some Russian energy sales, but higher prices mean Russia is still earning considerable energy revenue. That’s why Europe is working to phase in a full embargo of Russian oil by sometime this year. Under the best scenario, that could still push oil prices higher and US gasoline prices above $ 5 per gallon, on average. Energy price hikes in Europe, which is far more dependent on Russian energy, have been much steeper. A full-blown energy shock is still possible, with more dramatic price hikes.

Food. Damage to world food markets has been less immediate, but some experts warn disaster is looming. Before the Russian invasion, Ukraine produced 30% of the world’s sunflower oil, 6% of its barley, 4% of its wheat and 3% of its corn. Russia has blocked all of Ukraine’s Black Sea ports, the principal way Ukraine exports food to the rest of the world. Nothing is moving through those ports. Rail and road links to Europe can’t move all of Ukraine’s production. That’s cutting into current supplies. The war itself could also reduce planting of future crops by 10% to 35%, according to estimates.

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Russia is also a major exporter of sunflower oil, wheat and barley. There are no direct sanctions on Russian food exports, but broad sanctions on other parts of Russia’s economy are cutting into those shipments. Fertilizer is another problem, since Russia is the largest exporter of nitrogen fertilizer, and the Russian government has halted exports. Russia and Belarus, a close ally that has itself threatened Ukraine, are both major producers of potash, a key ingredient in many fertilizers. Sanctions are affecting potash supplies from both countries.

Residents shop at a wholesale market ahead of the holy fasting month of Ramadan, amid rising commodity prices like as cooking oil and wheat, following Russia's invasion of Ukraine, in Baghdad, Iraq, March 31, 2022. REUTERS / Alaa Al-Marjani

Residents shop at a wholesale market ahead of the holy fasting month of Ramadan, amid rising commodity prices like as cooking oil and wheat, following Russia’s invasion of Ukraine, in Baghdad, Iraq, March 31, 2022. REUTERS / Alaa Al-Marjani

Spiking energy prices also push up the cost of food production, because cultivation and transportation become more expensive. Since Russia’s invasion began, wheat prices have jumped about 30%. Sunflower oil, used for cooking in many places, is up about 50%. The global cost of fertilizer is up 230%, portending higher food prices in the future, or lower yields by growers who cut back on fertilizer.

Developed nations will be able to absorb price hikes and find workarounds, such as new sources of needed foods. Developing nations will suffer more. A new report by the Eurasia Group and DevryBV Sustainable Strategies estimates the Ukraine war alone could boost the number of people suffering from food insecurity by 101 million toward the end of 2022. The number living in extreme poverty could rise by as much as 201 million. Effects will be worse in parts of Africa, Asia and the Middle East, which get a lot of subsistence food from Ukraine and Russia.

Other producers can eventually make up for lost food supplies to the Russian invasion. As we learned from the COVID pandemic, however, supply chains built over decades cannot be reconfigured in a month. Some countries are lucky enough to have internal supplies they can tap, but many rely on food from elsewhere.

“The problem is not a lack of wheat,” crop consultant Sarah Taber wrote in Foreign Policy in April. “It’s a lack of enough ships to move it around – and a lack of funds to buy it.”

Destabilization. Russia may not mind that its brutality in Ukraine is causing hardship around the globe. Rüdiger von Fritsch, who spent a decade as Germany’s ambassador to Poland and then Russia, told the magazine Der Spiegel recently that “Putin’s calculus is that after the collapse of grain supplies, the starving people will flee these regions and try to get to Europe.” He wants to destabilize Europe with new streams of refugees and build up political pressure so that Western countries give up their tough stance against Russia. This is his new hybrid warfare. ” That would be similar to the strategy Russia pursued after backing the Syrian government in the brutal civil war there, which sent more than 13 million refugees fleeing to Europe and elsewhere.

Vaga Maersk container ship is moored in the port of Saint Petersburg, Russia April 18, 2022. REUTERS / REUTERS PHOTOGRAPHER

Vaga Maersk container ship is moored in the port of Saint Petersburg, Russia April 18, 2022. REUTERS / REUTERS PHOTOGRAPHER

Shipping. COVID kinked the world’s sea lanes, and Russian militarism is now causing additional workarounds. About 11% of the global shipping workforce is from Russia, with 4% from Ukraine. Sanctions and possible wartime obligations could cause a shortage of workers and worsen port congestion in some areas. Much of the Black Sea is off limits to commercial shipping, given the Russian blockade of Ukraine and insurers’ reluctance to write policies for routes anywhere near a war zone. Freight lines are still shipping non-sanctioned goods in and out of Russia, to fulfill contracts, but most are indicating they’ll stop shipments once contracts expire. That will hurt Russia – largely the point of sanctions – but cause disruptions elsewhere, as well.

Russia’s war in Ukraine is obviously unpredictable, and it could end unexpectedly if somebody deposits Putin or Ukraine scores a string of battlefield successes that seems beyond its reach at the moment. Someday, markets may enjoy a giant relief rally as a path to peace comes into view. But until then, collateral damage in the global economy is likely to spread as combat on the battlefields drags on. In this one way, Putin’s war against Ukraine is a war against much of the world.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.Follow him on Twitter: Arickjnewman.

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