COVID-19 hit the world so hard. To date, the impact is still felt even among the most developed nations.
While some countries can now claim sufficient victory over the pandemic, many others are gradually learning to live with it; if the disease cannot be wiped out, then a hostile environment can be created through advancing medical and health innovations and interventions together with economic buffers to mitigate the effect in the lives of the most vulnerable members of the society.
As the world’s coping mechanism against the virus became stronger and more popular, the Russian-Ukrainian tussle surfaced, although with looming warnings in earlier weeks before. Now regarded as the most probable channel to a fully blown-out war, the hourly escalations in the unfolding events between the two countries and their respective allies have continued to frustrate global recovery efforts in a post-pandemic era.
Experiences from the pandemic have illustrated the possibility of a pass-through effect from a slight interruption in economic, social or political activity in one region of the earth to a full-blown contagion in other areas of the world. Inasmuch as there is a connection in some way through trade, diplomatic ties, border delimitation, or other connections, regional disruptions can travel far and wide, leaving a duplicated or exaggerated effect in the recipient entity.
Russia, the world’s third-largest producer of petroleum and a major exporter of natural gas, currently finds it distressing for Ukraine, the world’s fifth-largest wheat producer, to establish political and trade ties with the European Union (EU) and the North Atlantic Treaty Organisation (NATO).
Although various theses and antitheses have begun to spring up in the wake of the current pro-European tensions, however, the foundational causes remain clear: to the Kremlin, Ukraine’s membership with the EU and NATO (which Russia is not a member) would mean that the Western territory that borders Russia will constitute a hostile formation of countries that threatens Russia’s security. With brewing tensions over this issue since 2014, Russia finally invaded Ukraine on the 24th of February, 2022.
The invasion has led to thousands of Ukrainian households being internally displaced, and the country’s economy has been kept at a standstill. Destruction of properties and deaths resulting from the Russian assault have been recorded, and Ukraine’s allies have responded with a series of economic sanctions against Russia.
As it currently stands, the shape of global economies in the near and far future will depend on the outcome of the sanctions-for-assault drama, whether the situation escalates or is resolved. Even with a resolution, some lingering economic effects cannot be escaped.
Russia’s attacks on Ukraine can slow Europe’s economic recovery by contributing further to already elevated prices. As Europe receives about 40 per cent of its natural reserves from Russia, higher gas prices from supply cuts owing to the current regional disruption will mean higher utility bills for European homes and industries.
With higher energy prices, consumer spending and production costs will soar, thus, leading to increased prices. Among the nineteen countries that use the euro, annual inflation is recorded to hit 5.1 per cent, the highest since 1997.
Further military show off from Russia and a consequent myriad of retaliatory sanctions from the West will frustrate two major elements of expected growth bounce-back: consumer spending and industrial growth.
Post-covid slowed consumer spending, and slurred industrial activities began to recover. Increased vaccination subscription and fiscal intervention efforts were becoming fruitful, although with an inflationary kick-back, which was manageable.
Due to the current impasse, higher energy and food prices will surely intensify inflationary pressures, and central bankers will have to worry about potent intervention policies that will fit the present scenario.
For Ukraine, an intimidating military invasion has severely affected farming and food production activities and threatened exports through the Black Sea ports, which could significantly reduce global wheat supplies.
Yemen (imports about 22 percent from Ukraine), Libya (imports about 43 percent from Ukraine) and Lebanon (imports about 50 percent from Ukraine), who depend heavily on wheat supplies from Ukraine, for instance, will have to suffer significant supply cuts and consequently elevated prices as a result of the ongoing political rift with Russia.
A significant spike in the International Brent Crude oil price above $100 per barrel and a remarkable 7.5 percent jump in the index of consumer prices for the US, different from experiences from a year ago, has been reported.
This oil price spike is known to be the steepest jump since 1982. Furthermore, global stocks had remained highly elastic to current trends, as market benchmarks in Europe and Asia fell as much as 4 percent last Thursday when the invasion premiered. Also, Wall Street futures retreated by up to 2.5 percent, which is an unusually wide daily decline margin.
Read also: Gold rallies as Russian-Ukraine crisis stoke anxiety
With driven up energy prices and downtrodden stock returns, global responses to the ongoing challenge may be largely asymmetric but ultimately regressive, depending on the strength of economic ties with the principal actors on the scene and the level of dependence on their major products.
While higher energy prices have the tendency to disrupt the European economy more directly, other oil-importing nations will suffer the pain of higher import prices, which will feed into the rest of their economy if they are thinly diversified, exposed by poor policy environments or weak economic buffers. Higher food prices occasioned by the Ukrainian vulnerability will largely affect dependent African economies with significant import volume and low domestic capacity to produce.
In all, global efforts to fully recover from the pandemic are being sabotaged by the current conflict, and the already vulnerable world economy does not need any engagement that further exaggerates prices, rattles markets and displaces thousands of able-bodied individuals across geographic settlements.
