Dr Huma Baqai

31st Jul, 2022. 10:15 am

Global impact of Russia-Ukraine conflict

Conflicts are not localized anymore; they are everybody’s problem because their impact is global. The February 2022 invasion of Ukraine by Russia triggered the World Bank’s predictions that the Ukrainian economy will contract by 45% in 2022 and the Russian economy by 11.2%. But the impact of these shrinkages is global; markets witness continued volatility as crisis evolves, investors are opting for safe havens, and critical transactions have been postponed. The geopolitical and geo-economic uncertainty is likely to remain high as long as the military operations continue to take place; the end of which is not in sight. The impact of the conflict is multi-faceted resulting in a global economic slowdown.

Russia and Ukraine also produce a significant share of basic metals such as nickel, aluminium, and palladium. Delays in their procurement could hit industrial production and the wider supply chain. Other disruptions are likely due to a shortage of components imported from the region, especially in sectors such as automotive manufacturing. Several German car makers have already curtailed production due to the shortage of wiring systems supplied from Ukraine.

In its Trade Forecast 2022-2023, the World Trade Organization says prospects for the global economy have “darkened” since the war started. WTO economists have now downgraded their expectations for 2022 growth of merchandise trade volumes from 4.7% to 3%. However, the focus on food and energy security remains high.

The United Nations’ Committee on World Food Security defines food security, “as all people, at all times, have physical, social, and economic access to sufficient, safe, and nutritious food that meets their food preferences and dietary needs for an active and healthy life”. Recent global developments have complicated the whole construct of food security, the issues of supply chain, climate change, and conflicts have the global community facing new challenges. However, in this not so “just” world, the vulnerable communities and countries continue to suffer more than others.

The global economy was burdened with climate shocks, Covid-19, and rising inflations, even before the Russia-Ukraine conflict. All of this impacted the poor in low-income and developing countries far more adversely than others. The Russia-Ukraine conflict has complicated it further. Ukraine is often referred to as the “bread basket of the world”. The ongoing conflict entering its sixth month may deepen the challenge to an unprecedented scale. A key lesson both from Covid-19 and the Russia-Ukraine crisis is that we live in an increasingly interconnected world; conflicts and the ensuing issues in any part of the globe cannot be viewed as someone else’s problem. More importantly, perhaps the world leaders should move beyond band-aid strategies and stopgap arrangements to address problems that are deeply entrenched and need responses rooted in structural changes and a major paradigm shift in policy responses.

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Global food prices have been on the rise since middle of 2020 and are presently at an all-time high. In 36 countries food inflation is at 15%, resulting in poor families spending more than 50% and sometimes up to 75% of their income on food alone. To add insult to injury, fuel prices are at a seven-year high. Russia and Ukraine supplied about 30% of the world’s wheat and barley before the war. Nearly 36 countries are dependent on them for more than half of their wheat imports. Food insecurity is not just an availability issue, it is also a question of accessibility and affordability.

It is not just food, there is also an energy crisis in the offing because of the ongoing war. Russia is one of the three top oil producers in the world after the United States and Saudi Arabia, and the world’s largest gas exporter. Europe is enduring a partial cut-off of natural gas exports from Russia, its largest energy supplier. The most-affected countries in Central and Eastern Europe are Hungary, the Slovak Republic and the Czech Republic. There is a risk of shortages of as much as 40% of gas consumption and of gross domestic product shrinking by up to 6%. The prospects of an unprecedented total shut-off are real, thus fuelling concerns about gas shortages, higher oil prices, and economic impact.

As per the report of United Nations World Food Programme, acute hunger is expected to increase by an additional 47 million people, from 276 million to 323 million, a 17% uptick, with the steepest in sub-Saharan Africa. The need to act early and boldly is now backed by evidence; every dollar invested in prevention saves between $5 to $7 dollars once the crisis escalates.

The truth of the matter is that humanitarian needs are far more than available resources: the world needed $21.5 billion to assist the 147 million people in 2022, with a funding gap of over 50%. As per the data of the International Food Policy Research Institute, food trade policy tracker shows that since the Russia-Ukraine conflict, 23 countries have imposed export restrictions on food.

To address this escalating food security crisis, Russian and Ukrainian Ministers signed a historic agreement in Turkey on 22nd July 2022. The United Nations and Türkiye had been working for two months to broker this grain deal, in the midst of rising global anxiety over food security. The deal was brokered to allow exports of grain from blockaded Ukrainian ports. An estimated twenty two million tons of grain has been stuck in Ukraine since Russia’s invasion in February, causing serious food shortages and food inflation globally. The deal comes with the baggage of mistrust and threats from both sides. US state department spokesman, Ned Price, has blamed Russia for using ‘food’ as a weapon, whereas Europe has accused Russia of using ‘energy’ as a weapon and the US Secretary of State Antony Blinken has called upon the International Community to hold Russia accountable. On the other hand, Russia denies blockading Ukrainian ports; in fact, it blames Ukraine, for laying mines at sea and the Western sanctions for slowing down Russian exports.

The grain deal is seen as a stopgap arrangement. It does not address the major issue of Russian attacks on Ukrainian agricultural and coastal areas. Despite the deal, shipping companies may shy away from sending vessels to the Ukrainian ports said David Laborde, a senior research fellow at the International Food policy Research Institute (IFPRI). Of course, both conflict and climate change continue to complicate the redress mechanisms. The responses despite mounting challenges are disjointed and slow, thus pushing humanity towards hunger, famine and death triggered by both man and nature.

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The writer is Rector MiTE

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