The Economic Cost of the Russo-Ukrainian Conflict

By Vanessa Kan

It has been 6 months since the day Russia invaded Ukraine, and the war is showing no signs of stopping. An inconceivable amount of damage and suffering has been inflicted on the Ukrainian people. However, perhaps the most far-reaching, long-lasting consequence may be the economic impact on not only Ukraine, but other nations through a domino effect, as a result of the globalised economy.

Following the February invasion on multiple fronts, life in Ukraine effectively ground to a halt. During the initial Russian assault, the country’s Black Sea ports were blocked, and with it Ukrainian trade with the outside world. Air raids reduced the country’s infrastructure and even residential areas to rubble, while whole grain fields were torched by advancing soldiers

All in all, the war so far has caused 108 billion in infrastructure damage Despite Russia’s retreat from northern Ukraine, the conflict is still raging in the south and the eastern Donbas region. The fighting there resembles one of attrition, and constant, indiscriminate shelling - often using weapons prohibited by the Geneva Convention, such as phosphorus gas - has rendered entire towns practically uninhabitable, adding more to the already burdensome infrastructural and ensuing economic damage to Ukraine.

On top of the damage brought to the infrastructure of Ukraine, the people of Ukraine have also, in many ways, been affected by the war, which has led the sharp drop in production and economic output. Following the breakout of the conflict, Ukrainian men signed up to join the army and territorial defence militias in swathes, while women, children, and others who could fled Ukraine into neighbouring countries such as Poland, Moldova and even Russia - about 11 million refugees in total Needless to say, such a loss of its workforce deals a huge blow to Ukrainian economic capabilities The data, too, reflects the acute financial damage the war has brought to Ukraine. According to the World Bank, Ukraine’s economy is predicted to shrink by 45% by the end of the year, which would be its most severe GDP downturn(1) ever.

This economic situation also means that poverty in Ukraine will be exacerbated. Even before the war, the country had consistently been ranked low in terms of GDP per capita in Europe Now, according to the World Bank, 70% of Ukrainians face poverty due to the raging war(2), a statistic that is unlikely to ameliorate due to the destruction sustained by Ukraine’s fundamental infrastructure, and the current stalemate that makes the war highly unlikely to end soon.

Ukraine is not the only country that is experiencing economic woes due to the conflict. The country accounts for 10% of global wheat exports, with countries such as Pakistan (47 9%) and Egypt (25 6%) heavily relying on imported Ukrainian wheat to feed their people. However, until a month ago, ports in the Black Sea were blockaded by the Russian navy. Since the beginning of the war, the price of wheat has soared to its highest point since 2012, with the countries that rely on Ukrainian wheat facing a sudden shortage of the commodity.

Perhaps the most striking example of this phenomenon is the food crisis in Lebanon. Before the war, the country was neck-deep in a financial crisis due to government mismanagement. With goods already scarce and expensive, the Russo-Ukrainian conflict only exacerbated the situation Ukraine accounts for 66% of the wheat that Lebanon imports, and from the past few months the effects of this have been palpable. The cost of bread has risen a staggering 550%, and with nearly 80% of people living beneath the poverty line, a price hike for such an indispensable commodity will doubtless put more under economic strain and push the country into further financial ruin.

That said, those on the other side - that is, those who cooperate closely with the Russians - have not fared well economically, either. After Russia started the war on the 24th of February, the West and its allies have been quick to wage an economic one on Russia, aspects of which include freezing its central bank assets and sanctioning Russian firms and individuals. As a result, many corporations, such as Mcdonalds and H&M, have ceased doing business with Russia. Crucially, the country has been cut off from SWIFT (a society which allows for financial institutions and businesses to make transactions and share information) blocking Russia’s access to international finance markets.

Russia’s financial institutions haven’t been the only casualties of Western retaliation. Two other parties are also experiencing repercussions due to this situation. The first are countries which rely on Russian exports: Russia is one of the largest energy exporters, but due to sanctions, crude oil prices have seen a large increase, which in turn has kickstarted a domino effect, increasing the price of fuel, energy, and other related goods and services, affecting multiple industries and greatly disrupting global trade. Therefore, the cost of living in countries which rely on Russian energy, such as Germany, has increased. In some cases, this puts the economic security of citizens in jeopardy. The second are those who rely on Russian spending and investment Russia has long been a close economic partner of countries such as Armenia and Belarus. For countries such as Armenia, where many Russians oligarchs trade, invest and even vacation, their economies are inevitably dependent on Russia. However, due to the aforementioned reasons, Russia’s economy is expected to contract by 11%, resulting in reduced investment and spending in these countries, leading to them also being affected economically. In particular, Armenia’s economy is projected to contract by 4% this year due to the war in Ukraine. For countries which are vocal supporters of Russia’s acts, such as Belarus, the outcome for their economies is yet more detrimental. Following the outbreak of the war, during the initial stages of which Belarus served as a launching pad for Russian troops, countries have been quick to sanction Belarussian individuals and banks, leaving them further isolated from global markets. Belarus’s exports have already dropped 30% in 2022, and its GDP contracted in the first quarter of 2022(6). Evidently, all are not spared from the effects of this war

As Ex NATO secretary-general George Robertson once said, “Globalisation will make our societies more creative and prosperous but also more vulnerable”. In this new era of economic cooperation and conflict, the globalised world we live in today has contributed to both mutual prosperity and hardship During times of peace and stability, countries can depend on one another for goods and services - a win-win scenario. Yet, in times of crisis, one hindrance in the intricate web of global trade and commerce creates a ripple effect, causing widespread, unpredictable consequences that transcend borders and industries. Indeed, no matter the scale or magnitude of damage done, those who suffer the most are people who depend entirely on this web for their livelihoods, and who, without it, face poverty and destitution - a situation exemplified by the Russo-Ukrainian war. Therefore, it still remains to be seen whether humanity can surmount the paradox of globalisation, and whether it will help or hinder economic security in these challenging times.