The Russia Ukraine Crisis and the Effects on the Global Economy

What is the Russia-Ukraine crisis?

The Russia-Ukraine crisis began on February 24 as a result of the Russian military attack on Ukraine and is still on the agenda. The reason for the emergence of the crisis is that Russia wants to declare the Donetsk and Luhansk regions in the east of Ukraine that are separate regions from Ukraine due to the majority of the Russian population. Since the beginning of the crisis, it has had a lot of economic effects along with social and political areas.

How Did the Russia-Ukraine Crisis Affect the Global Economy?

The crisis between Russia and Ukraine has led to production and supply problems. Due to the difficulties in transportation, the export capacities of the two countries have started to decrease seriously. This situation had a negative impact on energy and food prices in many countries.

As it is known, Russia and Ukraine have a large market share in the world market. For example, Russia has huge oil reserves and meets the world's oil needs to a large extent. In addition, Russia, which is the eighth largest agricultural economy, has an important share in food production along with Ukraine. Both countries have a developed agricultural sector. For example, two of them together meet 14% of world wheat production. Along with wheat, they have a significant market share in the production and export of corn, barley, and potatoes. Ukraine ranks first in global sunflower production along with basic foodstuffs, while Russia ranks second. With the outbreak of war between the two countries, the production and supply of these products got difficult. As a result, the prices of products in global markets have increased in many countries. For example, many countries have faced high inflation in food and natural gas prices and have had difficulties in securing these foods, and they still continue to experience this problem. As a result, in the last month, prices have increased by 75% in coal, 60% in natural gas, 50% in wheat, 45% in sunflower, 35% in petroleum, 30% in palm oil, and more than 25% in corn. As long as the war continues, it is estimated that the future effects of the war will continue to increase.

Another negative effect is experienced in the automotive sector. Russia is one of the leading manufacturers of four important metals used in the automotive industry; aluminum, palladium, titanium, and nickel. After the crisis, the prices of these products have also increased, and it is expected to increase gradually in the following periods.  In particular, the imposition of an embargo on these products by Europe and the United States will have negative effects on supply. As a result, this price increase in raw materials will also lead to an increase in car prices.

The Russian - Ukrainian crisis has also negatively affected financial markets. After the war began, when the world went into a financial crisis, the Central Banks of Europe, the United States, Japan, and the United Kingdom began to put a lot of money on the market by selling long-term bonds and securities of some institutions. As a result of the fact that so much money has been released to the market, the current balance sheet of the central banks of these countries is 30 trillion and above. As a result of this expansion in the money supply, inflation has risen rapidly in the United States, Europe, and the United Kingdom, which has led to the rise of the dollar.

 What are the restrictions that are put on the Russian Economy?

In the immediate aftermath of the Russia–Ukraine Crisis, the European Union and the United States took several restrictive measures against Russia. One of them is to block Russia's access to its own reserves, which are located on the banks of other countries. The European Union has blocked the Russian Central Bank's access to the amount held in the US and Europe Central Banks from its reserves of $ 643 billion. Then, they banned Russia’s wealth fund from borrowing on the international markets. Many Russian banks have also been excluded from SWIFT which is the international monetary transfer system. All these practices have negatively affected the Russian stock market. For example, the Moscow Stock Exchange lost 33% of its value with the outbreak of the war. The stock market was able to trade for a limited period of time, and the stock market's daily rise in the benchmark index MOEX remained at 10%. Therefore, it had to take a break from stock market operations for a while.

In addition, international companies boycotted Russia because of the war. Many international companies have begun to suspend their economic relations with Russia and their trade. Then, they decided to stop their investments in Russia as well. For example, Western companies such as Coca-Cola, McDonald's, Starbucks, Levi's, Airbnb, Apple, Visa, Mastercard, Ford, and Boeing have closed their branches in Russia. Russia, on the other hand, announced on March 9 that the assets of companies that decided to withdraw from the country could be nationalized.

In summary, the Russia-Ukraine Crisis has greatly affected the global economy since the day it began. Firstly, due to the crisis, prices have increased, leading to the rise of the inflation in the world, and this rise will continue in the coming days. Then world trade will begin to contract due to both the increase in prices and the deterioration of the transportation networks of the two countries with an important trade network. Finally, economic growth will decrease all over the world.


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