What is the Russia-Ukraine Crisis?
The Russia-Ukraine crisis began on
February 24 as a result of the Russian military attack on Ukraine and is still
on the agenda. The reason for the emergence of the crisis is that Russia wants
to declare the Donetsk and Luhansk regions in the east of Ukraine that are
separate regions from Ukraine due to the majority of the Russian population.
Since the beginning of the crisis, it has had a lot of economic effects along
with social and political areas.
How Did the Russia-Ukraine Crisis Affect the Global Economy?
The impact of Russia-Ukraine war on world
economy has led to production and supply problems. Due to the difficulties in
transportation, the export capacities of the two countries have started to
decrease seriously. This situation had a negative impact on energy and food
prices in many countries.
As it is known, Russia and Ukraine have
a large market share in the world market. For example, Russia has huge oil
reserves and meets the world's oil needs to a large extent. In addition,
Russia, which is the eighth largest agricultural economy, has an important
share in food production along with Ukraine. Both countries have a developed
agricultural sector. For example, two of them together meet 14% of world wheat
production. Along with wheat, they have a significant market share in the
production and export of corn, barley, and potatoes. Ukraine ranks first in
global sunflower production along with basic foodstuffs, while Russia ranks
second. With the outbreak of war between the two countries, the production and
supply of these products got difficult. As a result, the prices of products in
global markets have increased in many countries. For example, many countries
have faced high inflation in food and natural gas prices and have had
difficulties in securing these foods, and they still continue to experience
this problem. As a result, in the last month, prices have increased by 75% in
coal, 60% in natural gas, 50% in wheat, 45% in sunflower, 35% in petroleum, 30%
in palm oil, and more than 25% in corn. As long as the war continues, it is
estimated that the future effects of the war will continue to increase.
Another negative effect is experienced
in the automotive sector. Russia is one of the leading manufacturers of four
important metals used in the automotive industry; aluminum, palladium,
titanium, and nickel. After the crisis, the prices of these products have also
increased, and it is expected to increase gradually in the following
periods. In particular, the imposition
of an embargo on these products by Europe and the United States will have
negative effects on supply. As a result, this price increase in raw materials
will also lead to an increase in car prices.
The global economic impact of Russia Ukraine
war has also negatively affected financial markets. After the war began, when the world went
into a financial crisis, the Central Banks of Europe, the United States, Japan,
and the United Kingdom began to put a lot of money on the market by selling
long-term bonds and securities of some institutions. As a result of the fact
that so much money has been released to the market, the current balance sheet
of the central banks of these countries is 30 trillion and above. As a result
of this expansion in the money supply, inflation has risen rapidly in the
United States, Europe, and the United Kingdom, which has led to the rise of the
dollar.
What are the Restrictions That are Put on the Russian Economy?
In the immediate aftermath of the Russia-Ukraine war global impact,
the European Union and the United States took several restrictive measures
against Russia. One of them is to block Russia's access to its own reserves, which are
located on the banks of other countries. The European Union has blocked the
Russian Central Bank's access to the amount held in the US and Europe Central
Banks from its reserves of $ 643 billion. Then, they banned Russia’s wealth
fund from borrowing on the international markets. Many Russian banks have also
been excluded from SWIFT which is the international monetary transfer system.
All these practices have negatively affected the Russian stock market. For
example, the Moscow Stock Exchange lost 33% of its value with the outbreak of
the war. The stock market was able to trade for a limited period of time, and
the stock market's daily rise in the benchmark index MOEX remained at 10%.
Therefore, it had to take a break from stock market operations for a while.
In addition, international companies
boycotted Russia because of the war. Many international companies have begun to
suspend their economic relations with Russia and their trade. Then, they
decided to stop their investments in Russia as well. For example, Western
companies such as Coca-Cola, McDonald's, Starbucks, Levi's, Airbnb, Apple,
Visa, Mastercard, Ford, and Boeing have closed their branches in Russia.
Russia, on the other hand, announced on March 9 that the assets of companies
that decided to withdraw from the country could be nationalized.
In summary, the effect of Russia Ukraine conflict on world economy has
greatly affected the global economy since the day it began. Firstly, due to the crisis, prices have increased, leading to the rise
of the inflation in the world, and this rise will continue in the coming days.
Then world trade will begin to contract due to both the increase in prices and
the deterioration of the transportation networks of the two countries with an
important trade network. Finally, economic growth will decrease all
over the world, and the Ukraine economic crisis will
further deepen the economic instability globally.
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For detailed information on the subject of risks in trade, you can
review the content “Risks in Foreign Trade”.
