The Growing Global Fallout From Russia’s War in Ukraine
s Russia’s invasion of Ukraine grinds on, and Western leaders weigh their options and calibrate their responses, it’s obvious the impact of this war is global. Here’s a look at how this shock is shifting the tectonic plates of economics and politics around the world.
Middle East and North Africa
There was a moment when it appeared Russia’s war might sink the multinational effort to negotiate a return to the Iran nuclear deal. Russia—a party to the bargaining along with the U.S., Britain, France, Germany and China—was demanding a side deal to protect its commercial ties with Iran that would have violated sanctions against Russia following the Ukraine invasion. That issue appears to have been resolved, whether or not it happens…we’ll wait and see.
More broadly, one of the war’s main implications for the Middle East comes from global oil prices that have reached heights we haven’t seen in nearly a decade. Saudi ArabiaThe UAENow, there are large budget surpluses. Europe’s determination to relieve its dependence for natural gas on Russia also promises big potential long-term gains for major gas exporters Qatar Algeria.
But those countries in the region that aren’t big energy producers, particularly those that import nearly all their food, now face real dangers. Together, Russia and Ukraine account for 25% of global wheat exports and 55% of worldwide corn sales. In recent years, nearly half of Ukraine’s wheat exports have gone to North Africa and the Middle East, where many governments subsidize food purchases for millions of their citizens. The interruption of so much of the world’s wheat supply, and Ukraine’s inability to plant crops for next year, sharply raises the cost of these subsidies for governments already reeling from the costs of COVID-19. This region has seen high food prices often lead to violent social unrest.
This is the major economy that’s most at-risk Egypt, home to more than 100 million people and the region’s biggest wheat buyer. Egypt imported 30% of its wheat to Ukraine and half from Russia in recent years. The reserves of the Egyptian government could be sufficient to last for up to five more months. However, there is no sign that Ukraine’s war will end. Adding to the hit, Russian and Ukrainian visitors are a crucial part of Egypt’s lucrative tourism sector, adding to the risk that Egypt will be one of the war’s biggest losers.
There are problems with the conflict in Ukraine. India, which will become the world’s most populous country in the next five years, according to the U.N. India’s economic growth remains strong, but price inflation, especially for food, is now surging and could become a major economic and political headache. In general, India’s trade relations with Russia are limited, but Russia and Belarus, which has been targeted for Western sanctions for allowing Moscow to use its territory as an invasion launchpad, are the world’s leading exporters of fertilizer. All of India’s potash, a key fertilizer ingredient, comes from imports from Russia and Belarus. Both shortfalls and higher global prices will raise costs for India’s government, its farmers, and its consumers.
Continue reading: The Realistic Plan to Bring Peace to Ukraine
Russia’s war in Ukraine also complicates India’s increasingly ambitious foreign policy. India’s government has maintained good relations with Moscow since 1947 when it gained independence. Though his government remained officially committed to “non-alignment” during the Cold War, Jawaharlal Nehru, a committed socialist, had warm relations with Soviet leaders. Prime Minister Indira Gandhi was his daughter and liked to boast that she was born in year of Bolshevik Revolution. Even today, India’s defense ties with Russia run deep: Russia is India’s leading supplier of arms, by far.
To gain a long-term edge over China’s rival, Narendra Modi also works hard to improve defense relations with the U.S. In particular, he has made the Quadrilateral Security Dialogue—a defense partnership with the U.S., Japan, and Australia known popularly as the Quad—a centerpiece of India’s security policy. India continues to seek to finalize its purchase of the Russian missile defense system despite loud opposition from Washington. This deal highlights the complications in balancing ties with Moscow and Washington, and Russia’s invasion of Ukraine has made that dance much more awkward.
Even in South America, thousands of miles from the violence in Ukraine, the war’s impact can be felt. This region is home to some of the world’s leading commodity exporters, and many governments across the region are now benefitting from higher prices for agricultural products, oil, and metals. Nicolas Maduro, a member of OPEC. Venezuela, in particular, will benefit from the Biden administration’s desire to cut off Russian oil prices while managing election-year energy costs in the U.S. And countries in South America trade far less with Russia and Ukraine than do countries in Europe, the Middle East, Asia and Africa. (Fertilizer represents an important exception.
The second-order consequences of slower global economic growth, higher inflation elsewhere, will pose economic and political challenges to the region. South America was the hardest hit by COVID-19. This slowed economic growth and killed many jobs. The COVID-19 also increased inflation and income inequality, making it more difficult for governments to manage their budgets. Even if higher export earnings, created by the supply shocks that Russia’s invasion of Ukraine will exacerbate, helps governments rebalance their books, consumers will still pay more for food and fuel.
This has direct consequences for several countries that are in different stages of their political transition. These implications are directly relevant for a number of countries at various stages of political transition. Brazil ColombiaAn inflation shock to consumers could increase the odds of leftist opposition candidates winning while allowing conservative incumbents to be reelected in later elections. In ChileGabriel Boric, the newly elected President of Serbia will soon find that an economy tighter than he expected reduces any political honeymoon he may have added and makes it harder for him to fulfill his campaign promise to spend more. You can read the rest of this article. Peru, The public outrage over the price shock that consumers suffered will severely harm President Pedro Castillo’s government, which is already very unpopular. This could lead to opposition lawmakers trying to remove Castillo from office.
Bottom line: Vladimir Putin shows no signs that he’s willing to compromise with Ukraine’s government and to end the war. As the conflict drags on, so will its aftershocks.
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