Ukrainian War for World Economic

The Russian invasion of Ukraine shows no sign of ending. Since the invasion of Ukraine by Russia on February 24 2022, global sectors have experienced significant changes. One of the sectors affected is the economic sector.

The disruption caused by the conflict between Russia and Ukraine has created a significant impact on global markets. The impact is even more marked as both are major players in the export of several key commodities. Russia, as the world's largest wheat producer, previously accounted for 18 percent of total global exports, while Ukraine accounted for an additional 7 percent. In addition, Russia is also a top exporter of natural gas, oil and coal.

Since the start of the conflict, there has been a surge in commodity prices, with coal prices increasing by up to 60 percent, natural gas in Europe rising by more than 30 percent, and wheat prices rising by around 40 percent. The factors contributing to these price increases are not only related to the war conflict itself, but also to the sanctions imposed, which have increased the price of Russian oil. 

These energy price increases have been responsible for nearly two-thirds of the annual increase in inflation in the Europe region, which reached 7.5 percent in March 2022, putting an additional burden on the region's production costs and purchasing power. Developing and poor countries are heavily dependent on Russia and Ukraine for the supply of food commodities and fertilizers. 

More than 75 percent of wheat imports in many countries come from Russia and Ukraine. The same goes for corn and oilseed imports, with Ukraine being a major contributor for some countries. Ukraine's wheat production, especially in the Southern and Eastern regions that are the epicenter of intense conflict, is expected to suffer, as are other key crops such as corn, barley, and sunflowers that have a spring growing season.

Logistics related to transporting agricultural products is also a serious challenge, with around 90 percent of Ukraine's grain trade involving the Black Sea port, which is now inoperative. Russia has proposed that fertilizer producers stop exporting fertilizer, which could hamper food production in some regions of the world. 

Russia itself is the largest exporter of fertilizer, accounting for 13 percent of total global exports. The impact of the war is seen in the disruption of trade, including global transportation routes, and adds pressure to the already existing supply instability. A ban on flights between Russian and European airspace could threaten the smooth flow of global air cargo, triggering a rise in transportation costs due to having to switch to longer and more expensive routes, especially between Europe and East Asia.

The inflation pressures caused by rising commodity and food prices may accelerate monetary policy tightening, increase the risk of stagflation, and result in increased poverty and inequality. Similar pressures may arise in developing and poor countries. Global financial conditions have tightened significantly since February, and further tightening will put additional pressure on those countries, which are vulnerable to financial problems such as high debt, large foreign currency-denominated debt, significant short-term debt rollover needs, and multiple current account and fiscal deficits.

source: Kennedy, P. S. J. (2023). DAMPAK PERANG RUSIA-UKRAINA TERHADAP PEREKONOMIAN GLOBAL. Fundamental Management Journal.