The ongoing dispute between Russia and Ukraine is one that is hotly debated among world leaders. What began with Ukraine throwing out its Moscow-backed president and adopting a new pro-West government has turned into a dire military intervention. As a result, Russia has aggressively and unilaterally invaded Crimea to maintain its Black Sea Fleet and reclaimed a region of two million people, one that has been a part of Ukraine for over 60 years.
At the same time, Russia has threatened Eastern Ukraine in much the same way as Crimea, with some protesters demanding a referendum similar to Crimea’s, wanting to be annexed by Russia. As the world struggles to deal with these alarming events, the Russian and Ukrainian economies both face huge challenges and the potential for economic disaster.
Ukraine is struggling to keep itself from collapsing as a sovereign state and prevent itself from bankruptcy, while Russia’s stock market has plummeted and its domestic economy continues to weaken. Meanwhile, the world economies are beginning to experience the shockwaves of this Russian military intervention in the form of a potential energy war with Russia and the consequences of an increasingly unstable global economy.
Russia’s invasion of Crimea has also raised fears of other countries carrying out similar invasions, and thus has raised global demand for defence spending and nuclear weapon capabilities. This in turn makes the world even less safe and more unstable.
Overall, the Russian invasion of Crimea and the continued aggression against Ukraine will have repercussions for many years to come, and these 10 immediate effects to the global economy are just the tip of the iceberg.
10 Economic Sanctions
Top Russian officials and businessmen, mostly in Putin’s inner circle, are being hit hard with targeted sanctions for their involvement in Crimea. These individuals face visa bans in the US, foreign asset freezes, and the prospect for further sanctions from other countries. While Putin has personally laughed off these sanctions, they could in the long term embitter some of Russia’s oligarchs and billionaires against him as they feel the pinch of increasing sanctions targeted against them.
The destabilization of Ukraine has affected tourism not just in Ukraine and Russia, but also in other countries such as England. Wealthy people in Russia are spending less on British luxury goods, while Western tourists are avoiding Russia and Ukraine due to the risk of upheaval.
China has historically supported Russia, the two often voting together in the UN Security Council. However, it could punish Russia’s recent aggressive behavior by pressuring Russia to stop its aggressive push to dominate Ukrainian affairs and isolating Russia further economically.
China sees Russia’s invasion and annexation of Crimea as a dangerous precedent for regions that have long sought independence from Chinese rule, such as Tibet. Conversely, China may continue to sit on the sidelines of the conflict and neither support nor denounce Russia’s action, even tacitly endorsing Russia.
7 Ukraine’s Possible Economic Collapse
It remains unclear which country will supply Ukraine’s much needed bailout funds as it teeters on the edge of national bankruptcy. Following the fall of the pro-Moscow leader in Ukraine and the appointment of pro-West leader, Russia has frozen its 15 billion dollar bailout to Ukraine. However, the IMF is willing to provide the 35 billion dollar bailout Ukraine says it needs, but only if Ukraine lowers its high gas subsidies.
6 Russian Economic Downfall
Russia’s economic future is looking very bleak if they do not stop their aggression soon. The IMF has lowered its economic growth projection for Russia’s GDP from 0.8 percent to 0.5 percent. Even the Russian ruble has depreciated to its lowest level in five years against the euro and the dollar, while the Russian capital outflow has already exceeded $64 billion this year.
5 Global Economic Instability
Recently, the IMF chief warned that the Ukraine crisis could destabilize the global economic recovery if it spills over to other European countries at a time when global economic growth is still weak. The G-7 has also expressed the same concern over the global economic upheaval.
4 Global Defence Spending
Russia’s recent invasion of Crimea will likely increase Eastern Europe’s defence and military spending. This has the potential effect of benefiting the US arms industry, since the US has defence contracts with many European countries.
3 Higher Food Prices
With Ukraine being the sixth-largest wheat exporter, investors are speculating that wheat prices will increase, which could further bring instability to the market. Already there has been a rise in sugar, coffee, and soybeans throughout the world. Higher food prices can lead to a slowdown in the growth of economies in two ways.
2 Natural Gas Disruptions
Currently, 40 percent of Europe’s gas supply from Russia through Ukraine is being threatened if Ukraine does not repay its gas debts that Russia has already hiked up. If Ukraine’s gas gets cut off, then Europe’s supply of gas would be affected and the subsequent rise in energy prices could greatly impact the global economy.
1 Nuclear Weapons
In 1994, Ukraine signed an agreement with world leaders, including Russia, to give up its nuclear weapons in exchange for a promise that their territorial sovereignty would be respected. Russia has gone back on that promise by invading Crimea, and the message it sends to those countries that are pursuing nuclear arms is a dangerous one.
The greatest risk to the global economy comes in the form of nuclear weapons ultimately being used as a result of some future conflict. With countries like South Korea, Japan, Iran, and others now more scared than ever at the prospect of foreign invasion, the demand for nuclear weapons has grown.
In the end, if countries do expand their nuclear weapon capabilities it will endanger the world economy as a nuclear conflict becomes more likely. The damage done to nuclear disarmament and global stability could be one of the most enduring consequences of the Ukraine crisis.
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