The full impact of the Ukraine war a year on

A year of war in Ukraine has already made a dent in world prosperity. e full impact of the Russia-Ukraine war on global trade and energy trends is still unclear but its deeper impact will be felt in how the con ict plays into shifts that were already reshaping the global economy before Russia’s tanks rolled in on February 24, 2022.

Most immediately, the war added new uncertainties to the economic trauma of a Covid-19 pandemic that had already led to record rises in public debt, in ation-fuelled cost-of-living crises, and labor shortages in essential sectors. Economic sanctions on Moscow came as hurdles to world trade were mounting after an era of rapid globalisation. Russia’s weaponisation of its gas and oil exports bolstered the case for an energy transition already made urgent by climate change.

“ e shock of war on demand and prices has cas- caded through the global economy and, in conjunction with Covid and other policy decisions, has created these headwinds to growth,” Robert Kahn, director of global macro-geoeconomics at the Eurasia Group consultancy, told the Reuters news agency.

“And I think we are not done yet.” e war has devastated Ukraine’s economy, shrinking it by a third, while sanctions are only now starting to starve Russia of revenues from energy and other exports. But it is harder to quantify its impact on the rest of the world.

European neighbours have so far avoided the mass energy rationing and wave of bankruptcies that were feared, thanks to e orts to build up fuel stocks and rein in energy demand, and – not least – to an unusually mild winter.

Global food and energy prices were already surging as the world emerged from the pandemic lockdowns of 2020 and spiked higher after the outbreak of war, but many indices are now below their levels of a year ago. e International Monetary Fund (IMF) now estimates the global economy grew 3.4% last year – barely one percentage point lower than it had forecast before the war started, and before the world’s central banks took aim at in ation with big interest rate hikes. e war’s impact on the power sources driving the global economy evolved through 2022, with an early rush into old fossil fuels such as coal followed by a growing push to invest in the renewable energies that are seen as less vulnerable to future geopolitical shocks. e International Energy e 2007-2008 nancial crisis and election victories for politicians advocating protectionism had already paused a two-decade spurt in globalisation that saw containerisation expand and both Russia and China enter the world trade system.

“We nd that energy prices increased more in 2021 than in 2022, suggesting that the war and the sanctions were not the most important drivers,” analysts Zsolt Darvas and Catarina Martins found in a December study for European think tank Bruegel.

Some might conclude that means the world economy has taken the con ict in its stride. Optimism prevailed at this year’s World Economic Forum in Davos, while nancial markets are betting that advanced economies can avoid all-out recession.

Whether world growth can now match the fund’s 2023 forecast of 2.9% remains to be seen. at newly upgraded estimate is well above the more downbeat 2.1% consensus forecast of private economists polled by Reuters last month.

And there are other highstakes unknowns.

With no end to the war in sight, the chief threat remains escalation, including the use by Russia of battleground nuclear weapons. at would take the outlook for both the global economy and wider peace into uncharted territory.

Agency (IEA) expects falling Russian oil exports to soon contribute to a plateau in global demand for fossil fuels and so o er the potential for a faster transition towards green energy.

But that still requires more than the record $1.4-trillion investment in clean energy the IEA sees for 2022. For the economy, the risk is that energy prices – and hence in ation – will be squeezed higher if shortfalls are not met.

What the con ict means for global trade is also unclear.

Now the question is whether Western sanctions on Russia – which e ectively cordon o what was the world’s 11th largest economy – are the start of a further entrenchment as countries restrict trading partners to those they see as allies. e World Trade Organisation (WHO) and others see a risk that commerce splinters into hostile trading blocs, a scenario the IMF has modelled as shaving as much as 7% o global output.

One possible trigger for that could be a shift towards an extensive round of secondary sanctions targeting not only Russia but companies and investors that do business with it.

Eurasia’s Kahn said such a move – which could gain political traction if the con ict gets hotter – would plunge Russia into economic isolation comparable to that experienced by Iran, long sanctioned by the West over its nuclear program.

“We haven’t done that because Russia is much more important and because we are worried about the global repercussions of comprehensive sanctions,” said Kahn.