Feature

Ukraine's economic shock waves

How does this effect the global economy?

The smartest insight and analysis, from all perspectives, rounded up from around the web:

"Russia has long been a relatively minor player in the global economy," said Patricia Cohen in The New York Times. Its share of the world's total output is less than that of Italy. But make no mistake — Russia's decision last week to invade neighboring Ukraine "injected a huge dose of uncertainty and volatility" into the global economy just as the United States and Europe were re-emerging after the Omicron surge. Walloping sanctions imposed by Western allies against Russia's financial system caused its currency and stock market to crash. The hits "avoided disrupting essential energy exports, which Europe relies on," but the war still caused the price of oil to surge above $100 a barrel amid "anxieties about disruptions." That has fueled concerns in the U.S. about higher inflation, already at its highest point in 40 years. 

The last days have seen a "mass corporate exodus from Moscow," said Sam Meredith in CNBC.com. European energy majors BP, Shell, and Exxon announced plans to bring an end to joint ventures in Russia, while automakers Volvo and General Motors said they will suspend car shipments. This marks what's likely to be a permanent change in Russia's relationship with the West; many corporations have concluded "that the financial and reputational risks of continuing operations in Russia are now too great."

The biggest risk to the global economic outlook comes from higher energy prices, which "can easily trigger a global recession, significant inflation, and massive popular discontent," said Brenda Shaffer in Foreign Policy. We saw it in 1973. Even if they are not explicitly targeted by sanctions, Russian energy exports are poised to be "significantly curtailed," thanks to the hits on Russia's banks and other financial entities. "Just like the 1973 crisis, this is taking place while energy markets are already stretched." Oil prices were on an upward trend as demand returned to pre-pandemic levels. Despite all the political talk about renewable energy, Western countries' continued reliance on fossil fuels has "handed Russian President Vladimir Putin significant leverage over their energy prices." 

The U.S. economy still looks to be on solid ground, said Jon Hilsenrath in The Wall Street Journal. "A range of data suggests U.S. economic activity picked up in recent weeks" as COVID cases and hospitalizations dropped. Occupancy at American hotels in mid-February rose 45 percent from a year earlier while airport checkpoint counts surged above 2.1 million. A sustained stretch of oil prices above $100 a barrel could sap some consumer spending, but "analysts so far aren't forecasting a big hit to economic growth." However, several factors could quickly revise that calculus, said Neil Irwin in Axios. A lingering war, escalating financial sanctions on Russia, further damage to Ukrainian exports, and the risk of cyberattacks on infrastructure could "amount to a negative supply shock." Higher energy prices already "directly feed into inflation." Combined with slowing growth, they could produce "stagflation," essentially "making things worse on all economic fronts at once." The U.S. likes to think of itself as being insulated, "with its location an ocean away, strong domestic energy production, and maybe-too-robust consumer demand." But the ripple effects from this invasion will spread worldwide. 

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

Recommended

Beware of Parent PLUS loans
A loan.
Feature

Beware of Parent PLUS loans

Marijuana: A legal business still racked by crime
Marijuana.
Feature

Marijuana: A legal business still racked by crime

The daily business briefing: September 30, 2022
College grads
Business briefing

The daily business briefing: September 30, 2022

The daily business briefing: September 29, 2022
A flooded road in Villa Blanca, Puerto Rico
Business briefing

The daily business briefing: September 29, 2022

Most Popular

Are polls getting the midterms wrong?
Voting.
Opinion

Are polls getting the midterms wrong?

Trevor Noah announces exit from The Daily Show
Trevor Noah
The Daily Showdown

Trevor Noah announces exit from The Daily Show

Ginni Thomas meets with Jan. 6 panel, reiterates fraudulent election claims
Ginni Thomas
'minimal and mainstream activity'

Ginni Thomas meets with Jan. 6 panel, reiterates fraudulent election claims