Global Economic crises due to Russia Ukraine war
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Economic activity will remain deeply depressed through next year, with minimal growth of 0.3 percent expected in 2023, as energy price shocks continue to impact the region, says the World Bank.
The biggest threat to peace and security in Europe since the end of the Cold War is Russia’s invasion of Ukraine. Vladimir Putin, the president of Russia, gave a strange and occasionally insane speech on February 21, 2022, outlining a long list of complaints as justification for the “special military operation” that was announced the next day. The speech focused on a much more fundamental issue: the legitimacy of Ukrainian identity and statehood itself. These grievances included the long-running disagreement over NATO expansion and the design of the post-Cold War security architecture in Europe. It was a reflection of the worldview Putin had long espoused, highlighting the enduring bond between Eastern Slavs, including Belarusians, Ukrainians, and Russians who all have a common ancestry. The emphasis on the enduring unity of Eastern Slavs—Russians, Ukrainians, and Belarusians, who all trace their ancestry to the medieval Kyivan Rus commonwealth—and the suggestion that the modern states of Russia, Ukraine, and Belarus should share a political destiny both now and in the future were reflections of a worldview Putin had long expressed. According to the corollary to that point of view, the West is currently imitating Russia’s imperial rivals by using Ukraine (and Belarus) as a component of a “anti-Russia project” and that distinct Ukrainian and Belarusian identities are the results of foreign manipulation.
Moscow has pursued a policy toward Ukraine and Belarus throughout Putin’s term in office based on the premise that their respective national identities are artificial and consequently fragile. Putin’s claims that foreign adversaries are advancing Ukrainian (and, in a more general sense, Belarusian) identity as part of a geopolitical conflict against Russia are reminiscent of how many of his forebears refused to acknowledge the agency of common people seeking independence from tsarist or Soviet rule. Putin, who has an interest in history, frequently references the ideas of philosophers who emphasized the organic unity of the Russian Empire and its people—particularly its Slavic, Orthodox core—in a style of what historian Timothy Snyder refers to as the “politics of eternity,” or the conviction that history has an unchanging essence.
The importance that Putin and other Russian elites place on the concept of Russian-Ukrainian-Belarusian unity sheds light on how the current conflict came to be, particularly why Moscow was willing to risk a major conflict on its borders when neither Ukraine nor NATO posed a military threat. It also implies that Moscow has more ambitious goals for dominating Ukraine than simply preventing it from joining NATO. These goals likely include control over the country’s politics, armed forces, and economy.
Additionally, it clarifies Russia’s military approach. Due to shared cultural, linguistic, religious, and other ties with Russia, Moscow seemed to believe that enough Ukrainians—at least in the country’s east—would accept some sort of reintegration into a Russian sphere of influence. Moscow’s bet was not entirely implausible given the recentness of the shift and the persistence of family and other ties across the Russian-Ukrainian border, despite pre-war polls showing significant numbers of Ukrainians willing to take up arms to defend their nation against a Russian invasion. Nevertheless, this assessment of Ukrainian identity has proven to be wildly incorrect, which has significantly slowed down Russia’s war.
The past three decades have seen a significant strengthening of Ukrainian civic identity, particularly in the years following the 2014 “Revolution of Dignity” and the ensuing Russian annexation of Crimea and intervention in Donbas. This civic nation of Ukraine includes not only Ukrainian speakers in the west but also a sizable portion of the predominantly Russian-speaking but increasingly bilingual east. Even as Putin’s Russia remains fixated on quasi-imperial great-power aspirations, a generation has grown up in an independent Ukraine that, despite its flaws, has maintained a strong democracy and is becoming more European in its outlook (thanks in large part to Russia’s aggressive meddling).
If anything, the current conflict has strengthened the divide between Ukrainian and Russian identities while strengthening the bonds between citizens of all regions, linguistic backgrounds, and religious affiliations. Russia’s attempt to establish long-term control over its neighbor will therefore almost certainly fail, regardless of what happens on the battlefield.
Impact of Russia Ukraine war on Global Economy
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By the end of 2022, the war between Russia and Ukraine will complete 310 days in total. Vladimir Putin, the president of Russia, gave the order for his troops to enter Ukraine on February 24, 2022. Since then, both sides have been actively waging a full-fledged war against one another.
Conflict and a shift in geopolitics have created a new global alignment that is upending the global economy. The economy was experiencing a worsening liquidity crisis. Due to the pandemic and the restricted availability of liquid cash, consumer spending has decreased. Major corporations are reluctant to invest money in the market because of the potential for low returns, and consumers are reluctant to spend money because they have limited access to cash.
Price increases for necessities followed the invasion of Ukraine in the post-Covid era. The annual inflation rate in India increased to 7.8% in April of this year, the highest level since May 2014. Due to supply disruptions, vanaspati oil, wheat, mustard oil, and sugar were the commodities most severely affected. The cost of crude oil has been directly impacted by the war. The already dire situation was made worse by the increase in crude oil prices.
At the start of 2022, Brent crude prices were around $80 per barrel. Brent crude reached a peak price of $128 per barrel not long after the crisis struck the world economy like a thunderbolt. Brent crude reached a new record high price of $122.8 per barrel on May 31.
On the other hand, the ongoing standoff between Russia and Ukraine has also had a significant impact on markets, as foreign portfolio investors (FPIs) have pulled out more money than Rs 1 lakh crore from Indian markets in the three months since the standoff started, which is Rs 50,000 crore more than the sum of the previous nine months’ withdrawals.
The global tightening of monetary policy due to inflation is another factor driving heavy selling by foreign investors in Indian markets. The withdrawal of FPIs has caused the Indian rupee’s value against the US dollar to decline
Major world economies are fending off concerns about inflation and a recession.
According to a World Bank report, the ongoing conflict in Ukraine has made it less likely that emerging and developing economies in the region of Europe and Central Asia will experience a post-pandemic economic recovery.
As energy price shocks continue to affect the region, economic activity will remain severely depressed through the following year, with only 0.3% growth anticipated in 2023. But so far, the area has fared better than anticipated in the face of Russia’s invasion of Ukraine. As a result of the above-expected growth in some of the region’s largest economies and the prudent extension of stimulus programs from the pandemic era by some governments, the regional output is now anticipated to decrease by 0.2% this year according to a release by the world bank.
Although economic activity is hampered by the destruction of productive capacity, damage to agricultural land, and a decreased labor supply as more than 1.4 crore people are estimated to have been displaced, it was stated that Ukraine’s economy is projected to contract by 35% this year.
After an inflation rate of over 8% was recorded, which exceeded 40-year highs, a potential threat of a recession is making headlines in the US. To combat the spiraling inflation, the US Federal Reserve has been raising key interest rates to all-time highs. Economists claim that while stagflation has not yet occurred in the US if the current situation continues for a longer period of time, there may be another stagflation after 1970.
Apart from nations, a number of businesses, mostly in the FMCG sector, adopted a combination of price increases and grammage reductions to combat inflationary pressure, also known as shrinkflation. This practice is used when market inflation is out of control.
The nations with a medium to high reliance on natural gas imports for heating (30% of energy demand), industry, or electricity, as well as nations with close ties to EU energy markets, will be hardest hit.
These nations must get ready for gas shortages and implement emergency plans to lessen the worst effects on households and businesses. These plans should include energy conservation, improving energy efficiency, and implementing quota/rationing schemes. Campaigns to change behavior that emphasize heating efficiency in homes and buildings, like resealing windows and insulating buildings, demand relatively little money and have noticeable results right away.
The war has left a psychological and social toll. According to Mark Milley, a United States general, 100,000 Russians, and 100,000 Ukrainians have perished so far. 100,000 Ukrainian soldiers have died, according to European Commission President Ursula von der Leyen. Later, a spokesperson for the EU clarified that both soldiers and civilians are included in the number of killed and injured.
Can statistics, though, adequately express the countless tragedies and widespread trauma caused by war?
Large portions of Ukraine are engulfed in a brutal winter and are without heat or electricity, with temperatures plummeting to -10C. Thousands of people are seeking refuge in metros as Russian missiles continue to pelt the country’s cities. After the war, Ukraine will require extensive reconstruction. Widespread direct exposure to conflict-related traumatic events (65%) among internally displaced people (IDPs) compared to a sizable minority (23%) of urban-dwelling people (UDPs). We found the elevated prevalence of PTSD symptoms that were also uniformly spread within several socio-demographic factors. There were, however, significant differences in PTSD between (1) IDPs compared to UDPs and (2) those UDPs with Ukrainian compared to Russian ethnic identity, the former of each pair showing increased likelihoods of positive PTSD scores.
What could the overall picture be in 2023? Will there actually be a nuclear war as predicted? With enough gas, oil, food, economic stability, and peace and harmony, will the world become safer?
There are two positive recent developments. First, Russian President Vladimir Putin has stated that he is open to negotiations as long as his country keeps the territories it has annexed. The irony is that despite demoralized Russian forces having been severely repelled, the annexations still maintain control over Ukraine.
Additionally, the possibility of a “ceasefire in spring” has finally materialized between the US, France, Italy, and Turkey, while the German Chancellor has called Putin on the phone to push for dialogue. This is encouraging news in a hopeless situation.
Furthermore, on December 7, Putin said something important: “We haven’t gone insane, we realise what nuclear weapons are. It goes without saying that we have these tools in a more sophisticated and contemporary form than any other nuclear power. But we’re not going to start flaunting this weapon around like a razor.
Russian oil will undoubtedly continue to be a contentious issue. The EU has set a $60 per barrel price cap on Russian oil that is transported by sea. The US, UK, Canada, Australia, and Japan support the action.
Russian oil can thus only be sold for $60 or less using tankers from the G7 and EU, credit institutions, and insurance firms. This is effective because the G7 controls the majority of international insurance and shipping firms, it will be difficult for Moscow to sell oil at a higher price, and most Asian and ‘developing economies’ may decide to support the G7 position.
An unprecedented global food crisis, with high inflation, has been caused by the post-pandemic scenario during the war, particularly in Africa and developing nations. Among others, Somalia and Eritrea depend on Russian wheat. Sunflower oil and soybeans are some of the additional goods produced in this area. A third of the world’s wheat and barley is grown in Russia and Ukraine, which also control 19 percent and 9 percent, respectively, of the global wheat export market. Grain exports have finally started after the restrictions on sea routes were lifted, but this has only slightly eased the crisis.
This conflict may have global repercussions in the days to come.