Ukraine War Fallout Highlights How Russia Matter(ed?) to Global Economy | Russia Matters

2022-05-14 20:25:22 By : Ms. Skye H

Prior to its 2022 invasion of Ukraine, Russia—and to a lesser extent Ukraine itself—had helped ensure a steady supply of commodities and services critical to a smoothly functioning global economy, some of them little noticed by anyone but specialists. Now, the war begun on Feb. 24, together with the subsequent waves of unprecedented Western sanctions, the corporate exodus from Russia and Moscow’s own responses to these measures have caused tangible damage to a number of major sectors of the global economy—including energy, agriculture, aviation and the production of high-tech goods like computer chips and electric-car batteries—compounding damage done by the COVID-19 pandemic.

Top officials at international financial institutions have warned that the war’s disruptions to global trade could push millions of people into poverty, causing food riots and lasting damage to poorer countries’ economies. The tremors have already been felt—from sovereign default in Sri Lanka to deadly unrest in Peru.

For many observers, the scale of these ripple effects has come as a surprise. Depending on the metric, Russia’s economy ranks somewhere between sixth- and 12th-largest in the world, but its heft has typically been attributed almost exclusively to hydrocarbons—a “gas station with nukes, ” as historian Yuval Noah Harari quipped a week into the war. Both President Joe Biden and his former boss, Barack Obama, have shrugged off the country as a bit player on the international economic stage. This is understandable: No matter the measure, Russia accounts for less than 3.3% of the world’s overall economic output. But what such a mile-high view of Russia’s economy doesn’t take into account is its outsized role in several key sectors of the global economy.

Here is a snapshot of five such sectors that have thus far been significantly impacted by Moscow’s invasion and its economic fallout.

How Russia mattered: Last year Russia was the world’s largest exporter of natural gas , second-largest exporter of crude oil and third-largest exporter of coal . It also enriches more uranium for use in nuclear power plants than any other country in the world.

Impacts: The supply of Russian energy on world markets is shrinking due to sanctions and jitters among key players in the producer-to-consumer chain. Diminished supplies have been pushing up oil, gas and coal prices, some of them already high post-pandemic. The knock-on effect is straightforward: Higher energy costs drive up prices for almost anything that is manufactured or transported, from cement to cosmetics. This, in turn, creates potential political problems for incumbents worldwide.

How Russia mattered: Russia was the world’s top wheat exporter in 2021-2022 and is a key producer of all three nutrients that go into fertilizer .  Russia was also the world’s second-largest exporter of sunflower and safflower oil, a key ingredient in many mass-produced foods.

Impact: Global food prices have struck a new high as the war in Ukraine hits supplies of grains, vegetable oils and fertilizers. Food prices in March jumped by 34% year on year, according to U.N. data—the fastest monthly rate in 14 years. Worst affected are poorer countries, already struggling from the impact of COVID-19. Humanitarian and rights groups warn that the war could leave millions hungry, especially in the Middle East and Africa, which rely heavily on Russia and Ukraine—also a major grain exporter—for agricultural products. 

How Russia mattered: Russia mines about 37% of the world’s palladium, according to market-research firm  Techcet, a key ingredient in both computer chips and electric car batteries. It also accounts for some 11% of the world’s nickel, another crucial input for EV batteries. Russia and Ukraine5 both supply other chip-making materials, including 40-50% of the world’s semiconductor-grade neon gas—a byproduct of steel manufacturing, used to feed lasers that print minute circuitry onto silicon. Both countries were home to off-shore IT teams for dozens of foreign firms.

Impact: Post-invasion sanctions and divestment have threatened supplies of key battery materials for EV makers in the U.S. and Europe, as well as computer chip makers. They have also forced Western firms to rejigger their IT outsourcing.

How Russia mattered: Russia is the world’s third-largest exporter of steel, and Russia and Ukraine are the world’s biggest sellers of pig iron, the briquettes of iron ore used in steel production. The U.S.—the world’s largest buyer of pig iron most years—got two-thirds of its imports in 2021 from the two countries. Rusal, a sanctioned Russian firm, is the world's biggest aluminum producer outside China, accounting for around 6% of global supplies. And Russia is a large producer of cobalt and copper.

Impact: Exports of Russian metals are threatened by the war and its economic fallout, which have already pushed prices to record highs. These problems are compounded by disruptions to supplies from Ukraine—a major producer of metals in its own right, ranking No. 8 among world steel producers.

How Russia mattered: Russia is the world’s third-largest producer of titanium, widely used in airplane and aeroengine manufacturing; the country also offers the shortest air routes from Asia to Europe.

Impact: The war is disrupting supply chains in the European aerospace and defense sector, including key metals deliveries, Fitch Ratings says. Global titanium prices have jumped as supplies drop, due both to sanctions on Russian banks and to secondary effects, like major freight companies’ unwillingness to keep going to Russian ports. In the skies, overflight restrictions stemming from the war have driven up costs for air travel.

Image courtesy of Piqsels, in the public domain.

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